‘For he that hath, to him shall be given’: the problem of regional inequality

DSC00234Success breeds success, and failure breeds failure. This seems to be the trend in the UK’s regional inequalities, as pointed out last week by Andy Haldane, chief economist at the Bank of England. The division in growth rates and income levels between London and the South East, and the North, are particularly stark. Only in the former are income levels now above those before the Great Recession, which began more than eight years ago, while the latter has fallen further behind.

This regional divide is not a new phenomenon. It has been the result of decades of uneven economic development in the regions of the UK. The almost relentless decline in the share of manufacturing output and jobs for the UK as a whole, particularly since the 1980s, hit the North of England and parts of Wales hard. Private sector dynamism has tended to be concentrated in London and the South East, particularly in the service sector, which makes up the majority of GDP and employment.

Successive governments have responded in different ways to regional inequality. Continue reading

Ecological economics: human progress as part of nature

599px-The_Blue_Marble“The term ‘ecological economics’ should be a little redundant, as both words share the Greek root oikos (household) and together mean something like household-study household-law. It is telling that the two fields of ecology and mainstream economics have grown so far apart in the century and a half since they were named that they now represent completely different sets of principles.

The basic idea of ecological economics can be summarised by [Herman] Daly‘s argument with the World Bank economists: when you draw the box for the economy, you have to put it in a larger box called the environment. The human economy is a subset of the world system. Our inputs, in terms of natural resources, and outputs, including pollution, are like the metabolism of a kind of super-organism. We can analyse it using the same kinds of tools as we use to analyse other living systems, such as a cell, or a beehive, or a complete ecosystem.

Instead of being a closed system, like a machine, the economy is open to the environment. Attention therefore shifts from the inner mechanics of the economy to big-picture questions related to things like scale and timing and the flow of energy. Is the economy becoming to big relative to its environment? Is it consuming resources at too fast a rate? Is it adequately disposing of its own waste? Is it endangering the food chain on which it depends for its survival?”

David Orrell (2010), Economyths: How the science of complex systems is transforming economic thought

But remember, it’s all just models within models within models. They are all we have, so if we are to sustain human progress, we need to build better ones: better at explanation, and better at laying out the options for responding to change.

Divisions between the economy, society and the environment are a simplification, and a potentially dangerous one. Ecological economics offers useful ways of thinking about the state and direction of humankind as part of nature, rather than its master. So too does sustainable development. In my view we also need a political economy approach to the environment which studies how the costs and benefits of change lead to potential conflict and particular distributions of power in society. These processes require management by governments working with each other and with civil society. Such issues are surely the most urgent of our times.

The UN’s Sustainable Development Goals: pipedreams or a call to action?

While I applaud the vision outlined by this short video, I am pessimistic about the widespread implementation of these goals. In the absence of crisis (and some might argue that parts of the environment are already in crisis), it is not clear to me whether the minds of politicians and civil society are sufficiently focussed on the tasks ahead. Can we achieve widespread development and continued growth while sustaining the environment that it all depends on?

Action on the goals requires international cooperation. Some of this has already occurred. Having committed to change, nation states need to knuckle down on the policy front, acting with a more distant vision than is usual in politics and confronting vested interests. The largest and most powerful economies must in the end lead the rest, setting an example, creating much of the change that is needed and helping the poorer and weaker countries to develop their own economies in what must be a considerably greener fashion than today’s richest nations managed.

Sustainable development: economy, society, environment

sustainable_development

An illustration of the concept of sustainable development

I have blogged far too little on sustainable development, a pattern which I hope to redress. This blog started out back in 2008, when I was beginning to turn my attention from the more traditional concerns of economics and development, towards incorporating environmental concerns. Not long afterwards I studied a masters-level module on SD with CeDEP, which runs excellent distance learning courses for postgraduates. This opened my eyes to new ways of looking at development and the environment, and how much can be learned from studying the two together.

Concerns about climate change, biodiversity loss, natural resource depletion and the health of the biosphere are ever-present. Sadly, the more immediate focus among politicians across the capitalist world has been restoring growth in the aftermath of the financial crisis. The issue of inequality within many of the richest nations has also been more to the fore, even if little has yet been done about it on the policy side. But in times of recession, the environment tends to take a back seat. Mainstream debates focus on growth at all costs. Continue reading

‘Decent work’ as a development goal

DSC00236aAre decent working conditions a luxury only achievable in rich economies? In other words, are their improvement part of economic and social development? Or could they underpin efficiency alongside social justice even in poor countries? In a paper published in the book Systems of Production (Burchell et al 2003), Gerry Rodgers considers these issues.

Rodgers answers the above by suggesting that improving working conditions are or should be part of the development process. Some basic rights should be achievable anywhere, but they should also be able to adjust upwards as an economy becomes richer, or when economic resources allow.

He defines decent work as the availability of employment, certain rights at work, a degree of security and workplace representation which promotes constructive dialogue between management and workers. Continue reading

Sustainable development and economic progress

Mombasa-KenyaBack in 2010, having not studied formally for over eight years, I took a risk and signed up for a postgraduate module in Understanding Sustainable Development, run by the Centre for Development, Environment and Policy (CeDEP). CeDEP runs distance learning courses through SOAS, where I took my MSc in Political Economy of Development in 2000-01.

Distance learning requires plenty of motivation. CeDEP did offer support through an online forum, but I was largely on my own. It was mostly a fascinating course, and broadened my outlook as to what constitutes ‘development’. Continue reading

Building a sustainable economy

‘Sustainability’ was defined according to the UK government’s definition in my previous entry. It is certainly a vague term. What is it that we want to be sustained and probably improved? Our standard of living is one vital measure of success. This must mean our material wealth and the not unrelated category of ‘well-being’, though the latter is far more than is allowed for by material progress. And if our standard of living is to be improved without limit, the means by which we develop socially, economically and politically has to by definition be sustainable. It may be unpalatable to some, but wonderful to others, this prospect of unlimited progress. But it seems to me to be necessary for human survival.

Here I want to explore different notions of sustainability, at the level of the individual, firm, industry, and national and global economies.

As has been explored at length by the economist Paul Ormerod in his book ‘Why Most Things Fail’, the behaviour of these categories, while is may or may not succeed for a time, is often doomed to failure. An individual dies, a firm goes bust, an industry technology is gradually superseded and finally replaced by superior forms. Sometimes, but less frequently, whole economies go bankrupt, and in a period of crisis, the behaviour of the global economy can seem to fail. During the Great Depression of the 1930s, the capitalist system was seen to be failing drastically to grow and to employ the great majority of its workforce, throwing millions into poverty all around the world. Partly as a result of this, it was replaced in some countries by Fascism and Communism, which seemed to offer a more rational approach to organising society and the economy. They promised full employment and centrally planned economic growth; a means to prosperity. Ultimately, these systems failed to provide sustainable peace-time development and were replaced by new forms of capitalism with varying degrees of political freedom. For the moment, capitalism has triumphed as form of economic and social organisation, and the question during the current financial and economic crisis is not what it can be replaced with, but how it can be better organised to continue to grow and deliver further prosperity. With the twin threats of global warming and environmental degradation, part of the answer to this must involve ‘greener’ and more sustainable growth, notwithstanding further crises, which seem to be somewhat intrinsic to the system, although I would argue that they can be substantially mitigated.

An individual can spend on credit in what proves to be an unsustainable way. When he or she is borrowing against the value of property whose value is rising, all seems to be well. When the property market turns and the value of this collateral falls, he or she may eventually be unable to borrow further to service debts. This behaviour can create booms and busts in private consumption across an economy and can be seen as part of the current credit crisis. Are these swings in consumption sustainable? They have happened in decades past, and the economy continues to grow on average from year to year; the answer would appear to be yes. Would it be desirable to have smoother consumption patterns? One can look at the misery of mass personal bankruptcy and unemployment caused in part by a severe downturn and argue yes also. But individuals would need to forgo some freedoms they have hitherto enjoyed, if credit regulations were tightened to prevent such consumption booms in the future. Even in the absence of this, the scale of personal indebtedness, in the UK and the US for example, seems likely to produce a typically more cautious consumer for a number of years.

Green behaviour by individuals, such as using recyclable or reusable carrier bags for shopping, buying from sustainable sources and so on, seems likely to incrementally create some sort of revolution in consumption. The interaction between firms, individual consumers and governments will stimulate such changes. Consumers can become more aware of the consequences of their habits for the environment and change their behaviour accordingly. As discussed in my previous entry, firms and governments can both lead and follow consumers in this way encouraging the other actors in this process to behave more sustainably.
 
Firms ‘failing’ and going bust is an inevitable feature of capitalism. Woolworths in the UK is a useful recent and well-known example. The economic downturn did not help, but much of Woolworths business had been undercut by competitors, and its share price had fallen precipitously during 2008. Such failure is part of the process of ‘creative destruction’ described by the economist Joseph Schumpeter. Competition and creative destruction help to drive economic growth and transform society. One could describe the recent behaviour of Woolworths as unsustainable because it led ultimately to failure. It is not clear that the company’s bosses could have done a great deal about its demise. On the other hand, its behaviour for many years was sustainable and economically successful. It is necessary for some companies to go bust to create sustainable economic growth and allow new forms of business organisation to prevale. So what is sustainable for one firm in the medium run may not be sustainable in the long run; and the unsustainable behaviour of one firm allows the economy as a whole to be sustained for longer. What is objectionable is the unemployment caused by failure, especially if jobs for the newly unemployed are not readily available. A modern welfare state can help insure individuals against problems which are more the result of systemic than individual behaviour, such as mass unemployment, and to some degree protects them financially from this endemic feature of capitalism; that is, creative destruction and recession.

Occasionally, whole economies can ‘fail’, and in today’s world, they may receive a loan from the International Monetary Fund (IMF). Iceland is a good modern example, though no-one would really claim that the Icelandic society had ‘failed’, more that its economy had run into some very serious financial problems. Semantics aside, a rich country such as this may be more likely to be able to reorganise itself to recover after a number of years. Argentina since the 1989 financial crisis is another example with to date worse consequences in terms of the loss of economic output since then, and especially relative to its economic ‘competitors’ (those countries at a similar level of development, with competing industries). Whole national economies can be too big to fail, such that they do require assistance from international institutions and by implication, the pooled financial contributions of other countries. Adjustment can be painful for the mass of the population, and crises too common for comfort, but it is more a failure of organisation and also a failure of ideas, rather than the failure of a whole nation. That would be too hard to bear.

Sustainability, in its new form as a buzzword of green economics, is perhaps mostly about the long term future of the global economy. Beyond the serious economic crises that preoccupy policymakers from time to time all over the world, there is perhaps a potentially more serious crisis that threatens the future of the planet. The concept of the global economy is only one way of examining this potential threat. We need to develop in a way that conserves (certain) natural resources and does not irreperably damage the ecosystem. The current financial crisis pales into insignificance next to the destruction of the ecosystem and the damage to human life which could result. Human beings also benefit from living in a pleasant environment and may wish to prevent other species from becoming extinct as a result of their activities. Losing such species may prevent some material progress from being satisfied: increased human life expectancy from the development of drugs from rare plants for example. It is difficult to predict the consequences for human beings of a dramatic loss of species from the earth. This is not really for an (amateur) economist to discuss however.

Much sustainability concerns the use of resources and the desire to either conserve energy or, more usefully, to use it more efficiently and produce it with far less damage to the ecosystem. Here economics has more to say. I will write more on this in future entries.

In sum, sustainability is about the survival of mankind. On a more detailed level, it is also about more than ‘green’ issues, and concerns the success and failure of different kinds of organisation, as well as individual behaviour. Companies can suceed for a while and then ultimately fail. Economies, local as well as national and global, can prosper and then decline, both relatively and absolutely, in the short, medium and longer term. It is up to us to ensure we experiment with new ideas and apply the best we can find to organise human activity for the long term. That is a difficult task.