Rethinking Economy: Laying the Foundations for an Economics of Abundant Life
By Wolfgang Höschele
What might an economy with a future look like? How can we build such an economy using existing building blocks? In my current research project, I am developing some answers to these questions from a systems perspective.
From a systems perspective, we can recognize that fundamental systems faults in our present economy need to be fixed so that we can look forward to a future worth living. To accomplish this task, we need to study which reinforcing feedback loops contribute to those systems faults, and where corrective mechanisms can best be introduced in order to obtain stability.
The following five systems faults are of special importance:
1. Money, income and profits are regarded as ends in themselves rather than as means. Instead of inquiring into the purpose of economic activity, it is assumed that economic activity is a good in itself (for example, when growth of GDP is taken as a goal). Instead of taking seriously the preconditions of economic activity (such as intact ecosystems and functional social interactions) and making sure to preserve them, within our economic system we tend to take them for granted and thus to degrade them. This leads to numerous inversions of ends and means, for example needs are created in order to create profit opportunities and jobs (needs as means), instead of working as much as is necessary in order to satisfy needs (the satisfaction of needs as the end of economic activity).
2. Only scarce goods have value. This creates incentives to first turn things into commodities and second to make them scarce; the second point is the most critical one. For example, “free” goods of nature only obtain value once they become scarce, which means that there is no economic incentive to keep them abundant (markets for “ecosystem services” only make sense if these “services” have become scarce, at which time it is usually far too late). Scarcity, which can be defined as the condition when demand exceeds supply, can also be created by creating ever new needs; particularly in the rich countries this is the only way of making continued economic growth possible.
3. The same dynamic that generates self-reinforcing growth also generates self-reinforcing crisis and impoverishment; this creates a compulsion to grow. However, perpetual economic growth is neither possible nor desirable on a finite planet.
4. Certain problematic human tendencies such as acquisitiveness, greed, and egoism are reinforced, while conditions are made unfavorable for the flourishing of human qualities such as empathy and altruism. As a result, we devote more effort to competing with each other than addressing the existential problems we face as a society.
5. Small initial differences in assets and income tend to be continually magnified by market processes as well as through financial structures that create large flows of money to the rich in the form of interest and dividends, without compensating flows back to the general public. The resulting social polarization leads to social conflicts, collapsing communities, lack of identification of individuals with society as a whole, excessive consumption of natural resources by the rich and desperate destruction of their own sources of livelihood by the poor.
How can these systems faults be corrected? The entire system can be represented as three cycles (as shown in the graph): one cycle of exchange according to performance, one cycle of redistribution for the common good involving dues according to ability to pay and gifts according to need, and a financial cycle for the further accumulation by the rich, who are not held to be responsible to the common wealth. This last circuit has become an ends unto itself and constantly withdraws money and resources from the other two; ceaseless economic growth is supposed to compensate for this continuous withdrawal. The solution consists in stopping the withdrawal or redirecting it for the common good. This solution can be obtained via the following components:
1. Defining a purpose. For the economy as a whole I propose the purpose of preserving the abundance of life, defined as the condition when all people enjoy good living conditions and diverse ecosystems and biodiversity are preserved. Such a purpose would give a coherent frame of reference for economic policy. Every organization, including every business, should give itself a purpose consistent with the goals of the abundance of life – this would lead to more effective organizations that cause less harm.
2. Connecting property with responsibility and work. Property and use rights are socially justified only if they motivate people to responsible work, and should therefore be linked to responsibility and work. Property and use rights should be shared in a similar way as responsibility and work in a business or in the care for common resources, for example in the form of cooperatives and commons. Graphics are used to show how this leads to very different incentives than in privately owned for-profit businesses.
3. Finance as servant. Finance is to be understood as part of the public infrastructure and must serve the common good. This needs to be reflected in the property arrangements regarding financial institutions, as well as in the services they offer. One-time payments (such as granting a credit or purchase of stock) should not be able to generate return flows that are not limited in time, and ownership of property titles must be linked with responsibility. Examples are shown of how profit shares, credits and asset pools can be designed according to these principles.
4. Basic Security, Effort and Income. Social polarization would be greatly diminished by the above measures, but market activities would still lead to tendencies in this direction that require correction. Life with human dignity is to be regarded as a human right and should be guaranteed. It should be possible to earn a little more than this with relatively little effort; one way to make this possible is discussed in the form of a self-determined service for the common good. Beyond this, additional income from work should always require additional effort; this effort is to be evaluated by others who are in a position to do so (for example, all the people working in a cooperative work out the entire salary structure, including that of management).
5. Deepening of democracy. The proposed measures require and promote a deepening of democracy, not only in politics but also in the economy. For this purpose, various processes of democratic decision-making need to be further developed; in particular they should direct the attention of participants to solutions that address the needs of everyone, instead of a few people “winning” at the cost of everyone else. The educational systems also needs to be further developed accordingly.
How are these systems changes to be put into practice? There are already many initiatives in place, but they need to grow, form networks, and become the rule. In the last part of this work I discuss the question how the conditions for this process of transformation can best be established.
This research builds on the analysis of my book (The Economics of Abundance: A Political Economy of Freedom, Equity and Sustainability, Gower, 2010) which primarily focuses on the systems fault that only scarce resources have economic value. By integrating graphic visualization and systems analysis of all five systems faults mentioned above, the present work goes several steps further and develops concrete proposals. On the one hand these are bold and innovative, but on the other hand they are as structurally conservative as possible: they are intended to preserve all aspects of the present system that are necessary for a sustainable and free society, while targeting for change precisely those key interactions that need to change so that we can look forward to a liveable future.
To comment or respond, please use our email function!
For updated information, please see http://whoeschele.de/en/economy-of-abundance-of-life/.