The state we’re in and the call for a new economy

I’m at the Imagine 2012 conference on cooperative economics in Quebec City. Here are some thoughts after the first full day. It’s a pretty frightening picture, folks. But there is hope.

The industrial age economy, and indeed the neoclassical model of economics underpinning it has reached the end of its useful life. Whilst it helped lift many millions out of poverty, we are now seeing greater inequality between rich and poor countries and even between rich and poor people within countries. A model of business based on maximising shareholder value in a world where only a tiny proportion of people are shareholders will only cause rising inequality. This is not just bad news for the poor. In unequal societies, the rich suffer from many more social problems than in more equal ones.

GDP growth brings about improvements to wellbeing, but only up to a point before tailing off and in many cases declining (for example, increasing obesity and mental illness in the United States.) Research by Manfred Max Neef suggests that this tailing off happened around the 1970’s or 80’s for most developed nations.

The economy is a sub-system of planet earth – an inherently closed, finite system, therefore the economy cannot keep growing indefinitely within it. This can be easily explained to young children. Yet this inconvenient truth is ignored by all large political parties who argue about whether growth needs investment or austerity, and we still have an economy based on ever-increasing, unsustainable consumption. There are about 1.8 hectares of workable land to support each human being on the planet. In rich countries like the US, the use is in excess of 4 hectares and growing. Not to mention the hundreds of millions of people in the newly developing middle classes in India, China, Brazil and others who are now joining the consumer party.

The key message is that we have to move away from a fixation on growth (getting bigger at any cost) and towards development – becoming happier, healthier, wiser, safer and with better relationships.

This is not a call for left-wing politics. Far from it. Socialism and industrial age capitalism have both failed. Capitalism, for all of its fundamental shortcomings is the best way humans have come up with to organise ourselves to produce the things we need. But we need a very different capitalism.

The cooperative movement – businesses based on ownership of members (be that customers, employees or other stakeholders in the community) offer an alternative to maximising shareholder value. Instead, they use capitalism to maximise social outcomes – in other words, the things that really matter to humans and the planet now and for future generations. This is the concept of development rather than growth in action.

This view of capitalism is remarkably well established. Cooperatives world-wide have 1BN members and the largest three manage assets in excess of 1.6TN (and guess what, they have been extremely resilient through the recent economic turmoil because they did not engage in the insane activities like shareholder-owned banks.) It’s extremely worrying that despite the size of the cooperative movement and the promise it holds in playing a part in a development rather than growth based new economy, there is no representation of the cooperative movement on the B20 – the business forum that advises the G20. Business as usual, the old model is there in abundance.

We have an economy and consumption that cannot grow indefinitely. We are close to irreversible climate change together with huge natural resource depletion and energy shortages. We have to act now to protect the planet for future generations, and we need to start by creating a new economy, and fast before it is too late.

Measuring the nation’s wellbeing

Good to see the Guardian covering some of the issues that we have been discussing here on this blog.

Although the headline is ‘Happiness at work: why it counts,’ this is about much more than just our work lives. I welcome the government’s call for a ‘Wellbeing index’ to track whether our lives are actually improving as well as simply whether economic activity (GDP) is increasing. Unlike GDP which is just a measure of income, wellbeing is more like an asset on a balance sheet because it is enduring. It is a measure of value that has been created for people and societies (human and social capital.) This forms part of the ‘National Balance Sheet’ idea that economist Umair Haque has proposed and I wrote about recently.

It seems incredible to me that this is actually a new idea. What is the point of the economy and indeed even the government at all if not to improve wellbeing over the long-term? It is about time we actually started tracking ‘that which makes life worthwhile’ as Robert F. Kennedy put it. I would like to see GDP relegated in its importance and the Wellbeing Index expanded into a full balance sheet to show the value that we are building (or destroying) over time for people, societies and the environment as well as financial capital.

There will be some shocks as the government, corporations and society wake up to the fact that much of what increases GDP actually destroys value on our ‘National Balance Sheet.’ But we need to go through this process to learn how to shape our systems and institutions to deliver value where it really matters.

Scrap bank holidays? I have a better idea

I couldn’t quite believe this was for real when I read it:

The Centre for Economics and Business Research says each bank holiday costs the UK economy £2.3bn.

They go on to suggest that cancelling all bank holidays will therefore add £19BN to Britain’s GDP. In other words, if we all work a bit more then the country will be better off.

What is really crazy about this is that they acknowledge that Britain is dependent on service industries which tend to shut down for bank holidays. But look at how one of the country’s largest service industries – banking – got us into this mess in the first place. They didn’t screw up and cause a global economic crisis because they took too many holidays. They worked too hard in fact, but at the wrong things. Perhaps if industry leaders had taken more time out to reflect then they might have seen how things were going to play out.

And it’s not just financial services that this applies to. All service industries require creativity, problem solving and innovation. You don’t get this by simply working harder. You get this by creating the right environment for smart people to be motivated and have the space to be productive. Time-off is essential to this – it gives the brain a chance to process. I have personally had great ideas whilst hiking at 4000M and on a scuba diving boat.

Bank holidays in the UK are very special for people in service industries. They’re the times when you get a holiday at the same time as just about all of your colleagues, clients and suppliers so you don’t come back to work having to catch up. Everyone is happier for the time off, and when we’re happy, we are more productive. And shouldn’t being happy be the goal anyway?

I would love to see how the CEBR has factored in these considerations, if at all. The BBC article doesn’t explain how they came up with this figure. I also visited the CEBR website and couldn’t find anything on there either.

I have a much bigger suggestion, and that is to stop using GDP as our primary economic measure at all because it makes us chase the wrong things. I agree with Robert F. Kennedy who said “Gross National Product measures everything, in short, except that which makes life worthwhile.”