article by Keith Rankin from Pacific Ecologist 3 (Spring 2002), pp.57-59
ed. Kay Weir
© 2002 Keith Rankin, Pacific Institute of Resource Management,
PO Box 12-125, Wellington, New Zealand
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by Keith Rankin
KEITH RANKIN examines development problems and concludes that a solution would be to extend the commons, the common wealth of humanity. People and governments need to feel responsible for what happens not just in their own country but for the whole world.
Economic development means a substantive and progressive change in the kinds of products we produce and the processes used to produce them. As such it implies improvements in living standards that are available for the benefit of everyone in the societies undergoing development, and not just for a favoured few. Such improvements in living standards - qualitative growth - may or may not be reflected in official economic growth statistics.
Sustainable development means that the resource base upon which production depends - in particular the fixed 'non-renewable' natural resources - is not being destroyed in the process. Development generally implies that the resource base is expanding. Sustainable development requires that the most critical and vulnerable resource, the natural environment, is not allowed to depreciate; it will be their for our grandchildren, and for their grandchildren.
Sustainable economic growth is a lesser concept. It is simply the growth of gross domestic product (GDP) that preserves the most vulnerable and least renewable of the resources upon which that growth depends.
In practice sustainable economic development will almost always show up statistically as GDP growth. The converse of course does not follow. Economic growth is not necessarily economic development. And while increases in GDP are not necessarily sustainable, it is equally true that an absence of growth can be accompanied by unsustainable practices.
A policy of zero-economic growth is unlikely to lead to a sustainable future. What happens if growth stops. Unless there are substantial gains that don't appear in the official statistics, we enter, at best, a zero-sum world. In such a world, the losers face a daily struggle to survive. Sustainability is the last thing they will care about. A starving man or woman will catch the last fish, or cut down the last tree, if it enables them to survive another day.
Further, the losers of a zero-sum game are inclined to revert to the traditional time-worn means of support in old age; children, the more the better. History suggests that people only choose to have less children if there is both economic growth and a secure source of retirement income.
One of the paradoxes of economics is that more can mean less, and less can mean more. In particular, more production and income can mean less demand for children, and an increased preference for leisure over commodities. The demographic transition that is already stabilising our future can be reversed if this paradoxical process that began in the 18th century is prevented from working itself through to its logical endpoint: a sustainable and comfortable society in which all people can live well while treading lightly on the planet that is our home.
In the early 19th-century Malthusian world-view of classical economics - a view that came back into fashion in the late 1960s with the writings of Paul Erlich (The Population Bomb) and anti-commonist (not 'communist'!) Garrett Hardin ("The Tragedy of the Commons") - was that, if the peasant/working classes had discretionary income, they would blow it by having as many children as their income could allow. They never explained why, throughout history, the bourgeoisie and the patricians had fewer children per adult than did the plebeians. Their views were completely contrary to the modern reality of falling birth-rates everywhere.
Hardin, in his 1968 article in Science magazine, noted that each individual has a direct incentive to overutilise common property while conserving individually-held property. The only real solution offered was to privatise the commons. Rather than focus on the natural commons, Hardin was more concerned to show that, in a welfare state, there existed a reproductive common. We would breed freely, he thought, if the costs of excess population growth were not to be born by the individual breeders.
Yet the demographic revolution, which began in 18th century France (and is revealed today by the fact that France has only half the population density of Britain), shows that the very opposite is true. When alternative sources of income in later life are available - ie alternatives to dependence on one's own adult children - then birth rates fall to replacement level or even lower. Thus the combination of economic growth and the welfare state has led to sub-replacement birth-rates in the economically developed OECD group of countries. The baby boom of the 1950s and 1960s that was uppermost in Hardin's mind was an exception to the pattern of falling birth rates that began in New Zealand in the 1890s.
The enemy is neither economic growth nor the welfare state. It is the unsustainable practices that arise from both need and greed; practices which may lead to unsustainable growth but may equally lead to unsustainable non-growth.
Many of our current and recent economic policies increase the likelihood that we will follow one of these non-sustainable paths. But, rather than focussing on the negative, I will note three related policy principles that should help bring about a sustainable future.
The particular scenario of a sustainable future that I believe my suggested policy principles will enable entails:
My first policy principle is a paradox: to boost spending in order to induce a subtracted-worker effect. The second principle is to recognise public property rights as the basis for a reformed welfare society. The third is extranationalism.
One of the most important paradoxes of economic life is the added-worker effect. It exists when families, under economic stress, seek to maintain living standards by committing more hours to paid work. Thus, in the Great Depression of the 1930s, women sought work as their fathers', brothers' and husbands' incomes declined. In addition men and women delayed retirement. And many more teenagers chose to enter the workforce when they left school, rather than go into tertiary education. They or their families could not afford them to be unavailable for employment.
Stimulating aggregate demand - eg facilitating more household, business and/or government spending via planned budget deficits, low interest rates or the creation of more money - is normally seen as a recipe for unsustainable growth. But what it really does is to create the kind of problem for which sustainable development is the natural response. In particular, by creating high wages and job security for most families, it gives workers the option of working less while remaining free from poverty. Or it gives families the option of supporting family members in activities other than paid employment. (This subtracted-worker effect is also known as "backward-bending" labour supply.)
When the price of labour goes up, firms find other ways of making things; ways that use less labour. We are on route to sustainable economic development if we economise on both labour and natural resources. In a frontier society, scarce labour always led to an expansion of that frontier. In a 21st century educated society, scarce labour combined with scarce land will lead to continued "total factor productivity" growth, which means more outputs without more inputs. That's sustainable. Unsustainable growth is growth that requires ever more labour and land inputs. Information technology will play a large role in enabling more outputs from fewer tangible inputs.
When wages go up like this it is normal to get a subtracted worker effect, the opposite of the added-worker effect. Both represent positive feedback mechanisms, meaning that cause and effect reinforce each other. From around 1850 through to 1930, the subtracted worker effect in Britain and in neo-Britains like New Zealand took the forms of reduced female participation in the labour force and of significant reductions in the number of hours that a man would expect to work (for money) during his lifetime.
A new subtracted worker effect in the 21st century would see many men and women choosing to work fewer hours per week, and looking to gradually free themselves from the yoke of employment from around age 50. It would also see fewer school leavers combining substantial part-time employment with full-time study.
There was no subtracted-worker effect in the 1960s for two reasons. First, young women entered the labour force in droves in the 1930s, and worked, under improving conditions, during World War 2. Thus working for pay was the natural thing for them to do once all their children had commenced school. Further, the growth of material expectations in the 1960s considerably outstripped the growth of hourly wage rates. Hence there was a small added-worker effect, and not a subtracted-worker effect.
In recent times, though, the biggest added-worker effect took place in the mid-1980s, as soaring mortgage interest rates required families to have two full-time incomes. Then, in the early 1990s the age of entitlement to New Zealand Superannuation was lifted from 60 to 65. Sustainable economic development requires the reverse, a subtracted-worker effect: less parental time spent earning wages and a reduction in the age at which retirement is facilitated by the welfare system.
The subtracted-worker effect requires income security as well as high wages. Thus, social welfare provisions have a direct impact on sustainable growth. Whenever there is an alternative source of income, people will refuse to work for low wages and will not have, on average, more than two children. On the contrary, if there is no alternative to one's own wages, populations rise as we choose to have children who we will expect to contribute to us through their wages. Labour supply increases as more people each want to work for longer hours. Market wage rates fall, to subsistence levels if unchecked.
Social welfare systems are under strain today. Part of the problem is that they were introduced as a pragmatic solution to some crisis or other, especially the Great Depression of the 1930s. Today, we need to make our welfare society more secure by firming its intellectual foundations. Further, global sustainable development requires global access to welfare benefits, pensions and the like.
By extending our intellectual investment into theories of private property rights to theories of public property rights - and by developing commensurate public accounting systems - welfare benefits can be understood in a new light (ie as a form of property income and not as transfers) and made more secure. This is not a difficult task. It is evident to all (except those who choose not to see) that the economic development of the last 200 years was driven by such commonly owned inputs (mostly "intangible" assets) as knowledge, technology, the natural environment, social overhead capital (infrastructure), social capital, democracy and improved institutions.
Governments and businesses may however be unwilling to distribute revenues they at present regard as their own. The imperative task is to simply gain acceptance for the concept of public property rights. We can then account for existing payments in a way that is more appropriate to a modern capitalist society. The second task is to remove the anomalies that affect many women; namely our inability at present to pay low income tax rebates to persons (eg caregivers, students) who do not pay income tax.
A global system of welfare benefits or credits based on common property rights would remove the need for anyone to resort to unsustainable methods of gaining a living.
The remaining issue therefore is how to create a global policy shift, and not just a shift in one or two countries. At present if one country's firms internalise environmental costs while other countries' firms do not, then other countries will appear more competitive on world markets. The only national solution to counter the unsustainable practices of other countries is some form of import protection and export credit scheme.
The solution to this conundrum, while not necessarily international, is certainly extranational. Large groups of like-minded countries need to coordinate their policies. For example, the Americas in combination with Oceania. Or Europe and Africa, together. Such supranational "commonwealths" could prosper independently from each other if they had to.
Planning for a sustainable future will not work if each nation has to come up with its own independent plan. Nations' economies are far too interdependent for that to work. On the other hand global agreement about anything is almost always impossible, and the creation of a global bureaucracy concentrates too much power in too few hands.
Extranationalism is not just about coordination. It's about empathy. Take Japan. It's markets ruthlessly bring about deforestation in South-East Asia, while Japan's forests remain intact. If say Indonesia and Japan were to see themselves as fellow provinces of an East-Asian commonwealth, then they would treat all the forests within that commonwealth as domestic. The trick is to extend, everywhere in the world, the extent to which each part of the environment is regarded by a billion or so people as their own asset rather than as someone else's problem.
Sustainable economic development is a natural process, so long as we take an "us" perspective of the world. Capitalism is not the problem. But excessively individualist "me-them" capitalism is motivated by individual greed and a preference for others to take ownership of the difficult problems of political economy that require collective action.
The optimal policy mix does, I suggest, involve counterintuitive lateral thinking. But relying on government to solve the problem is just another form of "me-them" irresponsibility. We need more "us" responsibility as a mindset; more of what could be called "common" sense. The public domain is our combined common. But don't call be a commonist. Call me a public domain capitalist. We need to profit from, to protect, and to continually add to the public domain that sustains not just our nation but our species.