By Daniel Margrain
There appears to be a serious dereliction of duty on the part of the panoply of economic analysts and commentators within the legacy media to discuss the limitations of economic neoliberalism. On the contrary, these commentators and analysts regard the existing growth model as a panacea rather than the death knoll for society and the environment it undoubtably is.
Economic ‘experts’ who extol the virtues of the prevailing orthodoxy are discussed by the media commentariat in reverential tones and the discipline is viewed as if it is an exact science. Mainstream economists, chancellors of the exchequer, prime ministers, heads of the Bank of England and other ‘pillars of the establishment’, are widely regarded in this light.
What all these ‘experts’ agree on is their belief in the deluded notion that sustained economic growth is emblematic of societal progress. Very rarely are the premises upon which these ‘experts’ promote neoliberal economics challenged by commentators.
The UKs current chancellor, Jeremy Hunt, is part of a political establishment that continues to perpetuate the myth that the neoliberal economic growth model is the best way to curtail the threat of further economic crisis as opposed to recognizing it’s the major cause. Consequently, Hunt will continue to systematically push for policies that fly in the face of all available evidence.
The problems are as much to do with ideology and dogma as they are to do with incompetence. Rather than the global financial crisis of 2008 acting as a wake up call, Hunt and the likes of Kwarteng, Zahawi, Hammond and Osborne who preceded him, continue with the same poisonous model until the next crisis comes along, by which time they will continue with it until the one after that. And so it goes on. This is the economics of the madhouse.
Radical visions – development not growth
What is required is a radical alternative vision for society – a break from the concept by which everything has become a commodity to be bought and sold for profit. But who, other than a handful of creative thinkers in the academic sphere, are proposing alternative, imaginative visions?
One of the most ambitious ideas I’ve come across is that postulated by Pat Devine, whose thesis is closely aligned to that of the Chilean economist, Manfred Max-Neef. While recognizing the importance, geographically, of bringing production closer to consumption, Max-Neef argues that the root of the existing problem stems from how establishment economists perceive their academic discipline as being above, and separate from, nature and the biosphere.
According to Max-Neef, mainstream economists are ignorant about ecosystems, thermodynamics and biodiversity and regard nature as a subsystem of the economy.
Max-Neef argues that economics needs to be taught in a different way based in five postulates and one fundamental value principle:
1) The economy is to serve the people and not the people to serve the economy.
2) Development is about people and not about objects.
3) Growth is not the same as development, and development does not necessarily require growth.
4) No economy is possible in the absence of ecosystem services.
5) The economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.
The fundamental value to sustain a new economy, says Max-Neef, should be that no economic interest, under no circumstance, can be above the reverence of life.
For far too long, humanity and the natural world has been subordinate to the imperatives associated with an economic growth paradigm that’s perceived by mainstream economists and politicians as being separate and distinct from them.
What Max-Neef is saying in the first point above is that the dialectical relationship between economy and people has to be restored in order for society and nature to function properly.
The distinction Max-Neef makes between growth and development in point three, is particularly significant. As the economist from Berkeley points out:
“Growth is a quantitative accumulation. Development is the liberation of creative possibilities. Every living system in nature grows up to a certain point and stops growing. You are not growing anymore, nor he nor me. But we continue developing ourselves… So development has no limits. Growth has limits. And that is a very big thing that economists and politicians don’t understand. They are obsessed with the fetish of economic growth.”
This fetishization of economic growth is arguably explained, in part, by the fact that the monetary offshoots that accrue as a consequence of this growth have, since the onset of ‘trickle-down’ neoliberalism, increasingly ‘gushed upwards’ towards the top of the socioeconomic pyramid.
Statistics indicate, for instance, that economic output (GDP) in the UK, adjusted for inflation, doubled during the peak of neoliberalism, from £687bn in 1979 to £1,502bn in 2011. However, over the same period, income inequality, as measured by the Gini coefficient, increased from 0.25 to 0.34.
In other words, during the peak era of neoliberalism, working people who have created the sustained increase in wealth in society, have seen their slice of the pie reduced. Max-Neef understands that the ruling class obsession with the fetish of economic growth is underscored by the fact that this is the class that disproportionately benefits the most from it.
The threshold hypothesis
One of the later works Max-Neef authored was the famous threshold hypothesis. This states that in every society there is a period in which economic growth brings about an improvement in quality of life. But only up to a point – the threshold point – beyond which, if there is more growth, quality of life begins to decline.
According to Max-Neef, the U.S, which he terms an “undeveloping nation” is already at that point with the UK not far behind. The logic of diminishing returns applies to other parts of the system that eventually results in net costs over the long-term.
These costs are quantified, not only in strict monetary terms, but also involve human capital – something which the economic-growth fetishists rarely factor in to their cost-benefit calculations.
The graph below, highlighting the impact of immigration on UK debt, is an example of how the mainstream economists of the OBR have failed to take into account Max-Neef’s threshold hypothesis:
It would appear that the OBR is suggesting the existence of a causal link between the reduction in government debt and the notion that immigration is a net economic benefit.
However, the ORB analysis doesn’t take into account the uneven distribution of wealth which negate the benefits accrued. It also omits other indicators such as reduced quality of life resulting from, for example, a lack of school places or other pressures on public services that mass immigration potentially brings.
It’s the apparent inability of politicians to view the economic growth paradigm as destructive that opens up spaces for alternative narratives of the likes of Max-Neef to fill.
After winning the Right Livelihood Award in 1983, two years after the publication of his book, Outside Looking In: Experiences in Barefoot Economics, the Chilean economist’s metaphor was inspired as a result of the ten years he spent working in extreme poverty in the Sierras, jungles and urban areas of different parts of Latin America.
It was during this period that the economist from Berkeley began to view his profession in a different light. What subsequently happened was to change his life for ever:
“I was one day in an Indian village in the Sierra in Peru”, recalls Max-Neef. “It was an ugly day. It had been raining all the time. And I was standing in the slum. And across me, another guy also standing in the mud…This was a short guy, thin, hungry, jobless, five kids, a wife and a grandmother. And I was the fine economist from Berkeley. We looked at each other, and then suddenly I realized that I had nothing coherent to say to that man in those circumstances, that my whole language as an economist was absolutely useless.”
”Should I tell him that he should be happy because the GDP had grown five percent or something? Everything was absurd. I discovered that I had no language in that environment and that we had to invent a new language. And that’s the origin of the metaphor of barefoot economics, which concretely means that is the economics that an economist who dares to step into the mud must practice.”
Max-Neef argues that economists are divorced from the kind of poverty that’s central to their theories:
“The point is, economists study and analyze poverty in their nice offices, have all the statistics, make all the models, and are convinced that they know everything that you can know about poverty. But they don’t understand poverty. And that’s the big problem. And that’s why poverty is still there. And that changed my life as an economist completely. I invented a language that is coherent with those situations and conditions.”
The ‘language’ Max-Neef alludes to relates to how human beings in developed countries have lost the capacity to understand. Despite our ability to accumulate knowledge, this capacity, in the absence of empathy, love and understanding is, according to Max-Neef, insufficient:
“You can only attempt to understand that of which you become a part. If we fall in love, as the Latin song says, we are much more than two. When you belong, you understand. When you’re separated, you can accumulate knowledge. And that is the function of science. Now, science is divided into parts, but understanding is holistic.”
For Max-Neef, poverty from the perspective of economists, can only be understood by living among people who are poor. Only then can economists understand that in such an environment there exists a different set of values and principles that are alien to the world of academia that cannot be learned or understood their.
“What I have learned from the poor is much more than I learned in the universities. The first thing you learn…is you cannot be an idiot if you want to survive. Every minute, you have to be thinking, what next? What do I know? What trick can I do here? What’s this and that? And so, your creativity is constant. But very few people have that experience. They look at it from the outside, instead of living it from the inside”, says Max-Neef.
The Berkley economist, continued:
“In addition, you have networks of cooperation, mutual aid and all sorts of extraordinary things which you’ll no longer find in our dominant, individualistic, greedy and egotistical society. It’s the opposite of what you find there. And it’s sometimes so shocking that you may find people much happier in poverty than what you would find in your own environment. This also means that poverty is not just a question of money. It’s a much more complex thing.”
What underlines Max-Neef’s message, perhaps more than anything else, is that mainstream economists in the ‘developed’ world see themselves as sophisticated, educated and cultured. They do this while building walls, pushing away to the margins the poor of the ‘developing’ world.
Ultimately, mainstream economists fail to acknowledge that the inherent contradiction of the neoliberal economic paradigm is such that it’s undermining the very foundations upon which ‘progress’ can be sustained in the long-term.