The problem with economic rationalism is that it is rational only to economists.
Economists and environmentalists have been waging a not-so-secret war for decades, each arguing that the other’s position is untenable.
A typical argument/counter-argument goes something like this: The environmentalist sees the economist as the evil hatchet-man of corporations and government. The economist does not appreciate the environment, far less understand it. It is there to be exploited, and nothing more.
The economist sees the environmentalist as a Luddite extremist who regards the preservation of the lesser-spotted burrowing giraffe as more important than jobs, education, health and an efficient infrastructure.
There is right and wrong on both sides. Not all economic gurus are incognisant or unappreciative of the environment, and the “save an unimportant rare species at any cost” is simply a catch-cry economists use to deride the conservation movement at convenient moments.
Economics is at best an imprecise science and a dodgy art form. It is replete with theories which often look excellent on paper, but which can cause enormous damage, social as well as environmental, if put into practice wholesale.
Perhaps the most famous economist of all – after Adam Smith, the father of capitalism – was the Englishman, John Maynard Keynes (1883-1946), whose advocacy of reducing mass unemployment by creating giant public infrastructure projects was a cornerstone of Franklin Roosevelt’s ‘New Deal’. However, Keynes was more than just an economist. He was, in a sense, an ‘economic philosopher’, a member of the Bloomsbury Group, and a visionary. He did not see economics as the all-powerful engine of political and corporate success that it has become today. In fact, he hoped that it would “settle down as a modest occupation somewhat similar to dentistry”.(1)
I think Keynes would have been horrified to learn that, in 1969, economics became the sixth beneficiary of a Nobel Prize. The other five are: physics, chemistry, literature, medicine and peace. It must surely be argued that these five disciplines are all recognised for injecting something new and beneficial to society. A new discovery about the universe, perhaps; a revolutionary cancer cure; a book which galavanises the intellect; a political initiative which brings about – at least – an entente cordiale between warring nations. Economics does none of these things. At best it re-interprets old news; at worst it manipulates the figures to make old news look like new news.
In 1976, Milton Friedman became the eighth recipient of the Nobel Prize for Economics, an award which rested principally on his championing of consumption and the role of the free market in producing equable and non-inflationary economic growth.
The theory is appealing as much for its elegance as for its dissemblance, for it frees governments from responsibility and throws everything onto pure market forces, which – as we all know – can fluctuate wildly. Where an economist such as J.K. Galbraith would argue that governments have to maintain a hands-on fiscal policy (including, if necessary, such unpopular measures as income restraints and wealth taxes), Friedman would have none of that. It is little wonder that he became a darling of the political right, and a cause of concern to the left.
In effect, Friedman was the Pandora’s Box economist, for he threw open a trousseau of such vagary that governments could – and did – interpret his theories willy-nilly, to suit their own political agendas. Responsibly handled, Friedman’s proposals could have been economically, socially and environmentally friendly, but governments chose to adopt only the ‘economically friendly’ bits, and ignore the social and environmental consequences. In fairness to Friedman, I do not think this model was his Utopia, but it is an ineluctable truth of the human psyche that we have never been able to grasp an idyllic concept and turn it into a Utopian society.
In other words, governments saw Friedman’s ideas as a buck-passing exercise, and took on a Darwinian stance, whereby the survival of the fittest meant the survival of the economically fittest.
Starting with Margaret Thatcher and Ronald Reagan, western governments increasingly courted the ‘user pays’ philosophy, and began privatising nationalised industries at will. The notion that everything had to be able to pay its own way became a catch-cry of the 1980s, and has continued until the present day.
I am not arguing that privatisation does not have its place in society. However, by throwing a huge blanket over all facets of human endeavour, and asking each to play by exactly the same set of rules, governments have failed to distinguish between those undertakings whose primary role is the generation of wealth, and those whose very reason for being is to provide essential services.
Therefore, we may happily turn over our coal, oil and electricity industries to private hands. So, too (as it is topical) our government-owned telecommunications. But we should not be subsidising private schools at the expense of the public system, nor coercing people into taking out expensive private health insurance, because government hospitals are chronically understaffed and under-funded. Similarly, it is a duty of government to provide an efficient and affordable public transport system. If health, education and transport become any more ‘private’ they will become increasingly out of reach to the less well-off in society, who are precisely the people who need them most, and for whom these systems were designed in the first place.
The arts, also, must remain as beneficiaries from the public purse. To apply cold market forces to such areas as classical music, ballet, visual arts and drama, is to place them on a equal footing with their more populist rivals of television (and its siblings, such as videos, DVDs and so on) and pop music. The argument that “these things are what the people want” holds no water. If we reduce our artistic exposure only to that which appeals to the lowest common denominator of intelligence, we effectively implement a mono-culture, and anyone who wishes to access the ‘higher arts’ must therefore pay for the privilege. We cannot assume that it is only the rich who desire a cultural environment somewhat more sophisticated than Kylie, or reality TV.
Likewise, responsibility for the environment must remain in public hands, for at present, our approach to it is one of take, take, take…We shall, in time, and via a sea-change in our thought processes, begin to give back. I believe that private enterprise will have (and in certain enlightened instances, already has) a major role to play in this. But for now the government must remain firmly in charge, and its watchdogs must stay in place, for any further watering-down of present controls (which are already inadequate) could propel the biosphere toward nothing short of catastrophe. This is why I believe that the Bush administration’s refusal to ratify the 1997 Kyoto Protocol is an act of criminal negligence, and our own government’s lobbying to permit an increased level of atmospheric pollution is hypocrisy given a rubber stamp from on high.
Ignorance of the environment
If we wish to state a case for economic theory versus environment, we need look no further than an economist who held sway with the Reagan administration, Julian Simon. The anthropologist, Richard Leakey, famously dubbed the late Professor Simon as the “Doctor Pangloss of the environment”.(2) Virtually every statement Simon made about the environment (and, regrettably, he made plenty) showed up his total ignorance of his subject matter. He believed that uncontrolled population growth was beneficial to humankind. “We’re getting richer and healthier, living longer, having higher living standards, and it’s all because of more people…we are able to support five billion people healthily, well sheltered, well fed, where only 100 years ago we could only keep a billion alive”.(3)
Just which planet did Simon come from, I wonder? Are we to assume that because North Americans, Europeans and Australians are richer and healthier (and I question ‘healthier’ if national obesity is a benchmark of progress), then this must be so of the rest of the world? How many trips did Simon make to the Sudan, or Eritrea, or to the favelas (slums) encircling Sao Paulo? How many Bangladeshis or Kurds wrote him letters describing their wonderfully improved living standards? I am afraid that Julian Simon’s Camelot existed only in his own mind.
It is therefore hardly surprising that Simon should have cast aside many species as being of no importance, because they had no economic value. He could evaluate the worth of a cow, a sheep, or a field of corn, but not a tiger, nematode worm, or yet-to-be-discovered rainforest plant.
The paucity of this line of thinking can be seen if we revisit the March, 1989, Exxon Valdez disaster. Shortly after the catastrophe a team of economists – doubtless disciples of Simon-esque economic theory – undertook an audit of the clean-up operation. They factored in everything: the wages of workers brought in to do the job, plus their transport and accommodation costs, the price of detergent to disperse the oil slick, even the scrap value of the ruined ship, then set this against the market price of the crude oil the Exxon Valdez was carrying. They came to the sort of conclusion that only an economist can come to; namely, that the disaster generated more capital than would have been the case without it, and that therefore it was good for the Alaskan – and US – economy!
At no point did the loss of wildlife enter the equation, for the penguins, seals, sea otters and such were deemed valueless. (Oh, yes, the economists did enquire as to whether this part of Alaska was accessible to eco-tourists. It wasn’t.)
This illustrates exactly why I believe that government policy, currently predicated on economic theory, should hold such theory at arm’s length. Economics has become the force driving all political decisions, and economists are the gurus teaching that mantra. The dictum that what is good for the economy is good for society should be reversed to read: what is good for society is good for the economy. As things stand, economics, the linchpin of capitalism, is in fact its Achilles’ heel, for it demands that everything have a price-tag, a dollar value, and if that value cannot be assigned because the item somehow stands outside pre-programmed economic definition, then it must be worthless, and therefore expendable.
The contribution of Schumacher
Given all of this, how refreshing it is to revisit the theories of E. F. Schumacher, some 30 years after they were first published, in a landmark work called ‘Small is Beautiful’. Schumacher advocated downsizing, and de-centralisation. He was opposed to monolithic organisations, considering them both economically unwieldy and socially de-humanising. Small, self-sufficient units were his ideal, and he even extended this belief to a recommendation that cities should not have populations of more than 500,000. Though an economist himself, he mistrusted the discipline, for all the reasons already outlined, and firmly believed that economics should be a tool subservient to the good of humanity, rather than a master-switch controlling it. He also believed that in any decision which portended a possible conflict between profit and environmental best practice, it should be the latter which held sway. The following quote probably best encapsulates Schumacher’s (and my) concern: “The judgments of economics … give vastly more weight to the short than to the long term…they are based on a definition of cost which excludes all ‘free goods’, that is to say, the entire God-given environment, except for those parts of it that have been privately appropriated. This means that an activity can be economic although it plays hell with the environment, and that a competing activity, if at some cost it protects and conserves the environment, will be uneconomic.”(4)
And lest we think that Schumacher’s ideas are outdated, how is this for topicality? “It is of little use trying to suppress terrorism if the production of deadly devices continues to be deemed a legitimate employment of man’s creative powers.”(5) Schumacher and Friedman were contemporaries, and their ideas began to impact at the same time, in the early 1970s. Why then, has economics, Schumacher-style, been sidelined in favour of the ‘rationalist’ model? I could be facetious and say that it is because Friedman was based in America, an economic powerhouse, and Schumacher in Britain, then an economic basket-case.
But I think the real reason is that Friedman expounded what the politicians wanted to hear, offering an easy way out which suited political agendas desiring exactly that, and what is more, masquerading as something ‘visionary’. All politicians like to see themselves as visionaries. Few are. Schumacher was a visionary, and he offered what in my view was – and is – a perfectly viable economic vision. But it was a far more difficult road to hoe; it required hard work and imagination. Politicians are not shy of hard work, but imagination is less tangible, and it cannot be taught. Which model would you choose? Schumacher’s, or Friedman’s (or, God forbid, Julian Simon’s)?
We shall solve the world’s environmental crisis, but we will do it by addressing human concerns first, and we will do it with vision and imagination, which means that the next generation of politicians will have to be chosen – in large part if not in whole – from a far wider selection of backgrounds than is presently the case.
Sources: 1. E.F. Schumacher, Small is Beautiful, Abacus, 1974, p. 57
2. Leakey & Lewin, The Sixth Extinction, Phoenix, 1995, p.236
3. Suzuki & Gordon, It’s a Matter of Survival, Allen & Unwin, 1990,
4. Schumacher, op. cit, pp. 35-6
5. ibid, p. 247
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