Alternatives in the wake of the crisis.
In the wake of the meltdown of the global financial system, and consequent recession, still ongoing and with a prospect of a long slowdown ahead, numerous proposals and voices are raised calling for an alternative. From socialists arguing that this is the time to mobilise class struggle, to establishment commentators such as Martin Wolf leaning towards Keynesian solutions, change is in the air, and a sense that a new order is needed pervades.
In order to set things right, we need to know what went wrong. As critics put forward their version of events and alternative proposals, different understandings, perspectives and descriptions of the course of events collide, often fruitfully. Inevitably the question is political even in terms of understanding – clarity and understanding are at a premium here, as is truth. What I will attempt here is an exposition of some of the main accounts, and of the alternatives offered.
So what went on? Most commentators are agreed on a version of the following: from 2000 onwards, mortgages were increasingly offered to subprime borrowers – people of low income who formerly wouldn’t have been able to get a mortgage. The housing boom surged, and new builds went up all over the place. 100% and more mortgages were available. As people’s assets rose in value with the boom they were able to borrow more and felt more confident – continuing a longer term trend for stagnant income to be supplemented by borrowing. Eventually the boom had to crest and break, and as it did so, more and more people defaulted on their mortgages. Soon prices were spiralling down, and people were in negative equity and losing their homes.
Meanwhile the subprime mortgages had been packaged up by the lenders and sold on, into the financial markets, through an innovation called CDOs, a type of derivative, the idea being that this spread the risk around and diminished it for individual lenders. What happened instead was that, following a valuation of two hedge funds controlled by Bear Stearns’ derivatives which placed them far below the expected value, leading to their collapse, everyone realised at once that these derivatives might be worth much less than expected. The toxic debt as it was called, was held widely in the economy, and caused the failure of several enormous institutions, such as Lehman, AIG, Freddy Mac and Fannie Mae, which had to be rescued (Lehmans excepting, which meant its bankruptcy, and shockwaves rolling through the financial world) by emergency government bailout programmes. Banks went bust and were swallowed up, other banks merged; banks’ balance sheets shrunk like icebergs in a desert. Credit markets froze for a long period; affecting the manufacturing and industrial economy.
The situation in the financial system seems to have stabilised again. Credit is flowing now; the consolidated banks are open for business. However the “real” productive economy has been badly damaged by the period of low credit; businesses were forced to lay workers off, and maintain or reduce wages for remaining employees; the resulting lower demand has wounded businesses badly in turn. The effects will linger a long time according to economic forecasters, and the Bank of England. The pain is felt in high streets, job centres and homes. What form will the economy regroup and reform itself? In the UK we have been a nation of house and finance speculators; manufacturing jobs have declined 1/3rd under New Labour. We are in no danger of meeting greenhouse gas emissions reduction targets. Happiness is at an all-time low. The crisis in its severity and starkness gives us a chance to offload the old and bring in the new – but what we see instead so far is a consolidation of power by banks; the avenues for exploration of different systems closing. the interests of others, and never of the bankers, pick up the tab. Ostensibly the city of london is too big a revenue puller for the whole economy for it to be reined in; but we see the effects as distinctly negative rather than positive here.
The background to the crisis, factors which helped it come about include: the deregulation of banking practices – from Reagan and Thatcher on, as part of the practice of neoliberalism, the ideology of free markets, banks were increasingly allowed to engage in speculative activities – especially in the US with the repeal of Glass-Steagall which enforced separation of functions between commercial and investment banks in 1999. This in turn was not just a product of ideology but also the result of the swelling Eurodollar market as London was opened as a centre for US offshore banking operations – which created strains on the international currency system, (leading eventually to Nixon coming off the dollar) and external competition for US banks forcing their deregulation to survive. Additionally, as banks were regulated, a ‘shadow banking system’ emerged – composed of mortgage lenders, insurance companies who would provide the borrowing banks wouldn’t. In David Harvey’s account, the growth in derivatives (the exotic instruments banks have increasingly generated, speculated with, and reaped profits from), has come about in part as finance, seeking the 3%/year growth which capitalism requires to thrive, has run out of profitable investment opportunities (as limits are reached of new pools of labour, environmental resources, etc to exploit) and has needed to invest in itself.
Built onto the account above, numerous structural aspects are pointed to, and opinions diverge as to the accuracy and relevance of these factors. First, the crisis as outlined above, took place predominantly in the US and UK, in the Anglo-American economies where deregulation and financialisation have been pioneered and pursued most strongly.
Geopolitically, the crisis in the Anglo-American heartland of the capitalist world system perhaps signals a shift in the balance of power, eastwards; for a long time, the rest of the world economy has been hooked into the American economy. Developing countries have been indebted to US-dominated agencies; their debts denominated in dollars; or as with China, exporting countries have run up trade surpluses and ploughed them into dollar-denominated assets; all of which artificially supports the value of the dollar, allowing the US to run big trade deficits (i.e. to consume more than they produce and experience a disproportionate standard of living, at least as measured in consumer goods, as a result) – whereas this would normally cause their currency to be devalued with negative effects. Meanwhile actions by the US monetary authorities and banking sector first exploded third world debt and then used it as a lever into making those countries into profitable investment and speculation destinations, frequently to the ruin of the latter, as in the East Asian and eventually Latin American financial crisis of 1997. The US has maintained full spectrum dominance in terms of economic (in part bought by this dollar tribute system), military, and cultural hegemony. Competitors to the dollar are beginning to be mooted in part as a response to this system, and in part because of the dollar’s potential weakness (as a result of those enormous deficits), which could end those financial advantages and accelerate the shift in power. The hope is that the period of exploitative hyperglobalisation over (not because of more enlightened policy, but because of diminished potency), countries including the US could return to more stable and balanced domestic manufacturing and international trade complexes.
With the bailout and the arrival of government policy in response to the situation, the controversy began. Some analysts say the bailouts – unimaginable amounts of taxpayers’ money going to shore up banks’ balance sheets – were, not necessary as claimed to save the economy, but a class-based capitulation by the Fed to banking interests, rescuing those who had created the situation through their profitable and greedy wrongdoing, over and above the interests of the people. The Fed being staffed by Goldman Sachs alumni lends credence to this. They point out that other solutions might have been possible.
Commentators are split between those who feel the system has taken a bash but will return to an even keel, that doing this is the only course to take; it’s just a question of policy attempting to achieve this as painlessly as possible; and those who feel that the crisis is an opportunity to change a system which is fundamentally unviable anyway. Both feel crisis is part of capitalism’s cycle, part of its nature; the first group feel that this is an aspect to be managed (and that the severity of the current crisis is in part because of policy mismanagement); the second that crisis is a “straw that broke the camel’s back”, a feature which creates mass suffering and which gives sufficient reason, and opportunity to overthrow it.
Other controversial aspects and explanations
Some such as Costas Lapavitsas, point to the increasing self-sufficiency, in financial terms and for financial activities, of corporations since the 1970s and 1980s; banks, turning for alternative sources of custom and revenue, looked to individual borrowers. With advances in technology, they now had the means to advance money to borrowers based on credit score rather than personal relationships, enabling them to broaden their base of borrowers; and progressively the credit score threshold was lowered in order to obtain new customers.
Alternatives
What alternatives then are advocated? Let’s begin with those advocated by people close to the system, and expand outwards to more radical visions.
(re)Regulation
Numerous commentators call for increased regulation of the sector – imposing restrictions on banks’ ability to engage in the kinds of activities which led to the crisis, such as gambling on derivatives, commercial banks engaging in investment banking operations, etc.
Regulation is argued against as an appropriate response by people who say that it won’t be enough, that banks will (again) find ways around it, perhaps coopting regulators, and eventually to dissolve it, as they did with the previous regulation (such as Glass-Steagall) which was introduced after the Great Depression.
Imposing capital adequacy ratios, etc
Regulation with bite, is that which enforces certain minimum capital requirements on banks lending money; so they can’t lend amounts which vastly exceed their reserves. This would halt the kind of irrational excessive lending which caused the initial subprime crisis.
Taxes
Some call for taxes on speculative activity; such as the longstanding Tobin Tax proposal, to tax currency speculation transactions a very small amount, which both slows their pace a fraction and generates vast revenues, because of the scale of these operations. It has not succeeded in passing into statute, for political opposition. A related proposal calls for progressively greater taxes as a currency falls under speculative attack, thus diminishing the incentive for traders to continue shorting it.
Monetary management
The regulators (most notably the Fed under Greenspan) are accused of having permitted low interest rates and easy money to continue for too long – removing the punchbowl only long after the party had stopped. Interest rates should have been raised sooner. Now that they are low, other forms of quantitative easing are advocated – pumping money directly into the economy.
George Soros calls for regulators to have a better understanding of the reflexivity of markets, and prices – the concept that markets are influenced by people’s perception of markets likely future progress
Regulation based on a hypothesis of market equilibrium, which holds for goods, doesn’t hold for assets; instead Minsky’s hypothesis of booms and busts holds. As assets (e.g. stocks, or houses) increase in price, the expectation is of future rises, encouraging holders to hold and buyers to buy; so price rises become self-perpetuating. Regulation which assumes that markets will find an equilibrium is therefore unable to deal with – to understand or to influence beneficially – reality.
Keynesian solutions
The government spending policies associated with John Maynard Keynes, include massive government spending to lift the economy out of the doldrums – providing work, putting money in people’s pockets to spend in the economy. This is also seen as an opportunity to invest in ecologically sustainable infrastructure – as in Green New Deal programmes. The problem is to work out where the money will come from – as the government is so massively indebted as a result of the bailouts coming on top of previous deficits.
Monetary reform solutions
This leads us to another type of solution advocated at a more fundamental level. Monetary reformists point to the way money is mostly created in the current economy by commercial banks and the Federal Reserve Bank, rather than by the government. The process for injecting money into the economy involves the US government issuing bonds which are purchased by the Federal Reserve Bank with money the latter creates from thin air; the government then has to repay these bonds over a period of time, which means for all money which is created this way, the government carries spiralling debts – to a privately owned banking system. In this way the banks maintain a grip of tribute and policy control over the productive activities of the economy and the general surplus. Similarly commercial banks and mortgage lenders create money whenever they loan money to a customer; to them goes the power to do so and the financial benefit from doing so. Crucially, only the principal is created on these loans, and not the extra money required to pay interest – which each borrower must compete with others to obtain, in a game which like musical chairs necessarily leaves some people standing, bankrupt, and the rest (both businesses and individuals) perpetually slaving away (the horrific metaphor is deliberate) working off debt – hence, the generally unrelentingly increasing pace of economic activity. The results are continually increasing debt, public and private, a paucity of money leading to effects like simultaneous unused productive capacity and desire for goods (i.e. supply and demand meeting at a lower level than they could for higher availability of currency to consummate them).
Marxist solutions
Marxists analyse the crisis keenly; they are, naturally, perennially vehement critics of capitalism, and the crisis vindicates their criticisms and seems to provide an opening for their theories to gain ears more widely.
Marxists have always pointed out the proneness to crisis of the capitalist system – Marx and Engels wrote during the mid-late nineteenth century when deep crises occurred every ten years. Engels appeared to believe that capitalism’s inherent susceptibility to crisis would lead to its breakdown and extinction. This hasn’t eventuated, because of an adaptibility and mutability which Engels wouldn’t have been able to foresee. Nevertheless crises are a recurrent feature and wracked the world on many occasions in the twentieth century, arguably accelerating the rush to the first, and instigating the rush to the second, world war. Crisis theory is a thriving school of Marxism, and I present some of its analyses below.
As well as the causing factors cited above, some Marxist analysts point to the falling rate of profit in the capitalist heartland – the fact that since the 1960s, the US has managed to obtain less return on investment than previously during the long postwar boom. This has had to be supplemented by increasing financialisation, and therefore the building up (and bursting) of progressively bigger bubbles.
David Harvey as mentioned above, shows that capitalism has needed 3% growth since its inception, and the crisis is the result of increasingly desperate and self-feeding attempts to obtain this; a target which will become anyway for reasons of reaching ecological limits, unaffordable and unsustainable.
The bailout, which in Marxist, left-leaning and libertarian eyes, transferred wealth en masse from the future toil of taxpayers to the unearned restitution of bankers, was framed as a class issue; shunning populist anti-banker campaigns the more sensible spectrum of this type of opinion nevertheless calls for struggle along class lines – for making the crisis, and the banking and credit systems a political, class issue. They call for money which is put up for bailouts instead to be spent on helping people not to lose their homes; on public works programmes improving health, education and other social services; all of which could cease the negative knock-on effects of the financial collapse (placing human needs and wellbeing above financial) and begin to revive the economy. The instruments advocated here are the traditional ones – strikes, organising, campaigning – but also moving beyond striking in production and interrupting/alternating money in circulation, and the credit system.
The economy more broadly
The crisis has simply highlighted in extreme form, issues with the economy in general. Factors such as failing to meet human needs are brought to a head in a crisis situation – but are present much of the rest of the time too. Problems with social welfare, happiness and life fulfilment, and ecological issues occur as a result of the working of the economy in general, for a variety of reasons, and numerous alternatives are proposed depending on the diagnosis. the Affluenza syndrome identified by Oliver James, etc.
We will look at these in two broad schools, policy ideas, and community-based people power alternatives, where a group gets together and implements an alternative, either instead of or in parallel to advocating policy change.
Among the former we can mention, ecological policy instruments, alternative institutions, alternative measures of GDP, and Islamic finance. Among the latter, local exchange trading schemes, alternative currencies, credit unions, microfinance and cooperatives.
Tax
Moves to levy tax on activities we want to discourage (pollution, etc) rather than those we want to encourage – labour, through the income tax.
Ecological policy instruments
Taxes, quotas and regulations can be used to achieve ecological goals. In the ecological economics school, the market economy is judged to be a highly effective allocator of resources, but to fail on other counts, with compensation and steering needed to adjust this failure. For example, Herman Daly stresses that there are three variables for an economic system – allocation, distribution and scale. The market is good at the first one: at the allocation of society’s resources between production of different goods (in other words production will take place to meet demand, broadly speaking, save for important distortions created by advertising, etc); but is not good at achieving a just and equitable distribution, because instead distribution is governed by purchasing power, i.e. by possession of capital. Most importantly for him though the market economy has no means to assess an appropriate scale – and lends itself to continual expansion of economic activity, which within a finite ecosystem will lead to excessive scale and ecological disaster.
Policywise, the use of regulation, taxes, and quotas is discussed. Regulation is deemed effective where for instance we want to reduce usage of an overwhelmingly undesirable substance, e.g. a pollutant, by banning it for example. Taxes (and subsidies) can reduce externalities – where for example a company produces too much of a polluting substance because they do not have to pay the full cost of the pollution, so production is still profitable even where the profit is less than this cost. For example, a Pigovian tax, reflects the cost of pollution so that the polluter pays that cost, and production is reduced accordingly. Finally and most approvingly, quotas at source are advocated – which impose hard limits on the amount of a substance which can be mined, thereby reducing pollution at the end of the pipe too.
Ecological economics gives us a way of thinking about the economy which allows the usage of the market mechanism but subordinates it to the reality of ecological constraints; built from the logic of the status quo, its different conclusions are nonetheless a profound challenge to it.
Alternative institutions
Institutions which render necessary economic services to people rather than professing to do so while in fact exploiting them and being highly privately profitable are advocated by a number of thinkers. The New Economics Foundation is a leading thinktank in this area. Its proposals for a more human-centred economy include post office banks, public pensions, an overhaul of taxation,
Alternative measures of GDP.
GDP is an ubiquitous goal, as a catch-all measure of an economy’s performance, and by extension, people’s wellbeing. The belief is that with greater GDP, more will trickle down. However this is quite a leap – as it measures, roughly, simply the volume of products and services produced or consumed in a year. No accounting is made for whether these goods and services contributed to or diminished wellbeing – in other words the measurement is purely quantitative and not qualitative. Chopping down the Amazon rainforest or paving over the greenbelt to farm beef or build a shopping centre, all contribute to GDP, though they might diminish wellbeing. The leap has been challenged – but a survey in the 1970s found a slight correlation in the postwar period between GDP and human welfare, so the question was laid to rest; however a more recent survey found the two diverged after that point. In the absence of an objective, quantitative way of measuring human welfare, GDP has been used. Comparisons are made between countries for a year, and for a country between years to establish relative success. Rising GDP and everyone is happy and politicians can parade their economic success. So the importance is undoubted. The singularity of the yardstick and its concentration on a financial numerator is also conducive to financial power interests holding sway.
Numerous initiatives have been launched to advocate reform of GDP. Some economists have focused on refining the measurements; on devising measurements which more accurately and more completely reflect human wellbeing. Notable here is the Max-Neef scale which rates human wellbeing according to eight different variables.
Others have called for GDP to measure benefits and costs separately, so that costs are not added up to benefits to produce a larger figure.
In many countries, GDP doesn’t include public assets, such as roads and hospitals, which contribute to the productivity of the economy; while the debts racked up to build them are accounted, so that they show as a cost, rather than an asset. 170 governments at the Rio de Janeiro Earth Summit in 1992 pledged to overhaul GDP national accounts. Such moves were also recommended by the
convention of statisticians of sustainable development and Quality of Life (ICONS) in Curitiba, Brazil in 2003. Brazil has also persuaded the IMF to trial registering its public infrastructure as assets.
Islamic finance
Islamic finance has attracted attention as an alternative. It famously prohibits usury as did medieval Christianity. The latter’s workaround was to allow a community of non-Christians, the Jews, to charge interest and act as moneylenders. The Islamic method in some quarters today is to have banks pay an apportioning of profit in instalments, acting as interest in all but name. A range of Islamic financial products is offered by many banks to suit the Islamic market, which of course encompasses burgeoning economic centres such as the Gulf oil states, Dubai, Malaysia, etc.
However Islam’s economic alternative to capitalism potentially goes a lot deeper than that. For a start ethically Islam makes a virtue out of consideration for one’s fellow man, and a vice out of greed (as, again, does/did Christianity and other religions, which of course are supplanted by or merely complement the secular market religion).
“What is known as Islamic banking and Islamic finance is about individuals or groups attempting to generate profits in the current system without breaking the shariah rules such as the prohibition of Riba. However today I’m going to focus on the Islamic economic system as a whole which is much wider than this and is the true alternative to the Capitalist system”
In contrast to the productivism of capitalism (and of socialism), where as much economic growth as possible is aimed for, in the hope or belief that in this way the majority will benefit as there will be more wealth to trickle down, the Islamic system focuses on distribution.
The Islamic state is enjoined to look at the human being as a person with basic needs which must be fulfilled absolutely.
The Prophet (saw) said, “The Son of Adam has no better right than that he would have a house wherein he may live, a piece of clothing whereby he may hide his nakedness and a piece of bread and some water” [Tirmidhi]
Circulation of wealth is required. Hoarding is forbidden. Zakah, a tax of 2.5%/annum is levied on savings to encourage spending, as does the prohibition of riba (interest).
Rather than interest whereby a lender profits from exploitative extraction of interest, there is the Mudhabarah concept where money is advanced, and labour supplied by another party, and the two share profit and loss.
The Islamic economy doesn’t include a concept of stock speculation – the focus is on the ‘real’ economy of production and manufacturing. Stock ownership entails a direct role in the ownership of the company not a distant one which can see stocks traded in the space of minutes, as in the western system.
Further there is no concept of Limited Liability Companies, a key milestone in the development of western capitalism which enabled investors to take risks with enterprises and companies to access more funding. Islamic finance prohibits these and curtails those risks.
As our guide here, x, points out, no pure implementation of Islamic finance principles at the state level exists, so the above is pieced together from the Qu’ran and sayings of the prophet and his companions. However numerous voices claim Islamic finance could offer an alternative which would rein in capitalism’s excesses and orient the economy to human, social and ecological ends rather than values of pure profit.
Basic income
A strong movement in the early twentieth century was for a basic income payment, also known as social credit. The principle is that society’s productivity has been increasing steadily since the advent of industrialism, yet this benefit – which is social, involves all of us, depends on gains made which are general rather than the result of individuals (nobody alive today invented the railways for example), is narrowly shared out; in general in fact being paid as a dividend to holders of capital. Social credit argues that instead this social benefit should be distributed equally to all members of a population, regardless of wealth or income. So for example all UK citizens might receive a £2000 annual payment. This is levied via x; the idea is people spend it, boosting the economy. It’s equitable.
Community alternatives
Local Exchange Trading Systems
A great example of economic alternatives springing up from the grassroots, is Local Exchange Trading Systems. Here a community short circuits the financial system, and its control over the spigot of credit, which in turn meters access to means of productive trade and exchange; and decides to get together to trade its own products and services and thereby exchange skills and assets to the benefit of all.
LETS schemes were created by Michael Linton in Comox Valley, Vancouver, in 1983. The idea is an electronic exchange is set up, in which all exchanges of services are logged. A hairdresser cuts your hair and accumulates some points to spend on somebody else’s services in designing his website. This is a way to access all the services available within a community, without money being required.
LETS money doesn’t need to be earned before spending; so credit can in effect be accessed without incurring a debt or proving any ability to repay.
Time banks are similar to LETS, the difference being that in the former, contributions are valued equally, or calculated and exchanged in terms of hours of time spent, regardless of the vendor’s skill type.
A successful LETS scheme was run in Nottingham in the UK, and in Australia; these attracted at their peak hundreds of members.
LETS schemes tend to wind down, even the most successful of them, as members come to exchange services reciprocally, and cease to use the formal mechanism of the scheme.
LETS and alternative currencies are felt to be anti-capitalist because they go outside the money system (though there was, as for example in the scheme described by North, a divergence between those espousing anti-capitalist values and those simply trying to maximise uptake and utility and gain acceptance and respectability. Local governments have endorsed them.); “money” spent in reciprocal exchange is money which isn’t spent in the dominant money system, reducing circulation, reducing corporate revenue (corporate acceptance of alternative currencies is very low). Their ability to challenge the system is low, (either directly or by example) though they provide means to bring communities together, allow people to access services they wouldn’t otherwise, and get people thinking about money in a more critical way.
The numbers involved are small; there are problems – it doesn’t quite fit the bill of a mass alternative; however it gets people thinking about money and the economic system, tapping into their local community and resources, and feeling more connected to their place, all of which works against the logic of capitalist relations. And it is potentially an arrangement which will grow in the future as a means of community insurance against economic and other problems.
Alternative currencies
Some small communities have launched alternative local currencies, which are redeemable in local shops. The idea is to encourage buying goods and services in the community so that the money remains there.
In this form, it’s less radical than LETS, as you still have to exchange your standard currency for the alternative one, to begin to use it (unlike LETS where you can earn credit by offering a service). However, in the form of scrip money, the iniative begins to take on a more radical form. The classic example here is the Worgl case, where in the face of hyperinflation, the Mayor issued an alternative currency; it was circulated among local businesses and consumers in preference to the worthless official money, and led to a phase of prosperity before being outlawed by the government.
Greenbacks were issued by the government of the Northern US states before the civil war. These were fiat paper money, backed by the government’s promise to pay, rather than redeemable in gold; so the government could issue as much as it liked. As debts to the government were repaid, money was retired, to avoid inflation. This, again, led to a period of prosperity, before the greenback too was stamped out, this time by bankers’ interests, who got the US back on the gold standard.
As mentioned above, issue of alternative national currency in this sense is advocated because it enables a sufficient supply of debt free money to circulate for productive capacity to be utilised, for people to work and earn a good wage and spend it on consumption further boosting the economy.
Microcredit and credit unions
Microcredit in the south and credit unions in the north, afford poorer borrowers access to
Cooperatives
If the Thatcherite norm was the individual taking ontological priority over society, then cooperatives are the ultimate answer. In fact cooperatives have operated since the dawn of capitalism as a response to and a protection from its isolating impacts. A group will pool its resources – as a productive cooperative to gain bargaining power and access to markets; as a consumer cooperative, to gain purchasing power. They have a venerable history in the UK and other countries, and persist in the form of the Cooperative Bank for example.
Community alternatives afford people a means to wrest economic control over their lives from the central financial and economic complex. To the extent they succeed, it shows the power of community ideas and resilience; to the extent they fail it shows the limits of these kinds of intiatives which seek to change the world without taking power.
Academic economics
Status quo economics, the management of the economy as we know it, are products of a complex mix of power differentials, ideas, and ideas affected by power differentials (ideology). The deregulation of the period since the 1970s, generally referred to as neoliberalism, draws its academic grounding from neoclassical economics, which is the dominant strain of economics taught in universities today. It’s important because its vision is that which guides (and blinkers) policy, as its graduates are issued into high stations of counsel with confidence in a worldview and paradigm which they see as scientific but which has been shown to be anything but. These graduates have been sent round the world like ideological agents, such as the Chicago School (a bastion of neoclassical economics) graduates who were sent to be economic advisors to Latin American rightwing coup regimes.
As a relic of 19c positivism, neoclassical economics is easily lampoonable. It sees the human subject as an isolated self-interested profit-maximising individual. It sees nature as a resource to be exploited if financial profit can thereby be maximised. Notions of society, or of more cooperative emotions are foreign to it. It is excessively mathematical and fancies itself as a science rather than a profession, whose practitioners can secure good lifestyles from their service.
Numerous critics have called for alternatives. A group which is gaining momentum is the former Post Autistics Movement, now renamed the Real Life Economics movement. This began when a group of French economics students went on strike and called for more reality to be taught in the subject they were studying.
Some call for economics to reflect a systems view and yang values (Capra), as part of a general shift from Newtonianism in social sciences to a complex, multi-layered and relational view, as pointed to epistemologically by relativity and quantum physics. Members of a similar school include the Schumacher crowd and people like Hazel Henderson, who feel a solar age is on the verge of being ushered in. Others, as in the advocates of the Other Canon, such as Erik Reinert, lament the consigning to the discipline’s dustbin of the heterogeneous economics thinkers who focused on innovation as a driving force in the economy, rather than the material antics of capital and land. They call for the disinterring of Friedrich List, Joseph Schumpeter, even Nietzsche, as economics thinkers.
Feminist economists point to the patriarchal values espoused by mainstream economics.
Ecological economics advocates an epistemological change, whereby we view the economy as a subset of the ecosystem, rather than consituting the whole sphere of our calculations, considering only economic ends. The economy is a sphere of human activity which takes place non-negotiably within a larger ecological realm which it depends upon. Ecosystems can constitute funds of natural resources, and/or providers of ecosystem services; the challenge is for market activity to go on such that we use each within sustainable bandwidths. Instead, what often happens is that depletion of natural resources occurs to the extent that nature’s ability to supply ecosystem services, upon which we are utterly dependent, is harmed.
Daly also makes a forceful argument against determinism (believing there’s nothing we can or should do to influence outcomes, instead yielding to market forces) and relativism (where no goal is necessarily more desirable than another), describing these as tempting academic vogues, but essentially non applicable for guiding policy. He also has us consider ultimate means and ultimate ends; arguing that the ultimate means is none other than the ecology (i.e. we rely on it utterly, depend on it and do nothing without it); and the ultimate ends, is an unknowable or undecidable but suggesting that the penultimate ends is doing nothing to foreclose the continuation of society towards fulfilling the ultimate ends. He encourages us to understand that all human activity is polluting to an extent, so that we cannot eliminate this entirely; we simply have to find ways to achieve sustainable levels; and nothing less than a paradigm shift is needed and possible to achieve this. Another principle, which Marxists would not agree with, is that disruption to existing balances of power should be minimised, in order to make the policies as realistic as possible.
As economics is the prism through which policymakers view the world, its blinkers are theirs. Negative outcomes can be traced to the assumptions, premises and prejudices of the mode of thinking, and more enlightened policy, in turn, can arise from a better view of the economy and the tools needed to influence it.
However ideas aren’t changed only by better ideas winning out in some even playing field, fairly arbitrated. Instead the ideas of neoclassical economics have won out because they are sponsored by powerful institutions – by foundations, government bodies, corporate sponsors, etc.
Conclusion
The economy is crucial; it is how we survive, how we live, who we are, what we do; how we relate to each other socially, how we exercise our physical, mental and spiritual faculties in the material world. Our economy is subject to significant path dependency; our actions are often automatic, whether governed explicitly by a belief in the automatic advantage of the market or implicitly by unthinking following of the existing paths and guiderails; the way we live and interact has been influenced by ideas, by power struggles, by interests, entities. We approach it free of means of production as Marx said, to all practical purposes innocent of historical antecedence; and in doing so are governed by these historical plays. The economy is a social construct embedded in broader society, and even broader ecology, the internal laws of motion of the first impacting the others, and being impacted in return. The prism of our ideas about economics has a real consequence; but might not be able to be changed through better ideas winning out. Alternatives at the policy level could change the ballgame, but require political pressure to push through; community alternatives illustrate in a very visceral way the way dynamics of money and credit affect production and exchange, but do little to change the overarching policy they are always subject to.
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