WG 2: Financial and industrial policy questions

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WG 2: Financial and industrial policy questions – especially:

WG 2.1 fiscal reform

rationale for inclusion: because of the role of the financial sector in creating debt and fuelling consumer demand which in turn leads to unnecessary and excess production.

Dietz & O’Neill (2013, ch8) emphasise that money supply has now become detached from economic output; that banks etc create money through making loans (thereby creating debt) and that the financial sector is basically a cost on the ‘real economy’. They advocate the Cato-Mellor strategy:

1. A debt-free national currency: prohibiting banks issuing money as debt by gradually raising the reserve requirement to 100%. The power to create money should be transferred to a public authority such as a central bank. To prevent inflation, taxation and public spending need to be linked to the system of money creation.

2. Local currency: (ala Brixton £!) – issued by a community and valid only for transactions within that community. It encourages the use and production of local goods and services. Also provides some community trust and security at a time of (global) financial insecurity.

As well as local businesses and customers accepting and using it, needs a local exchange mechanism to swap the local currency for units of the national currency. To render the currency more mainstream and less fringe, government could accept them as tax payments (as in Bristol), and it needs to be available as electronic currency (as in Brixton.)

3. International currency – for transactions between currencies and to replace use of dollar and Euro as reserve currencies (giving unfair advantage to USA and Europe). Could be created as fiat money – meaning just declared as legal tender – or it’s value could be linked to a physical resource, such as right to emit CO2.

A Tobin or Robin Hood tax would further discourage the ‘wheeling & dealing’ culture of banks.

They emphasise that the financial system is a subsystem of the economy, which is itself a subsystem of the biosphere. (p105).’ … the financial sector can be viewed as a cost…the cost of getting money to where it is needed in the economy. The fewer resources needed to accomplish this service, the better…’ (p110)
WG 2.2 changing national economic goals and the way we measure progress

rationale for inclusion: we tend to discount what we don’t measure, to ‘mismanage what we miss-measure’ (Dietz & O’Neill p117). We need to educate the public, and political leaders, to give equal prominence to the social and environmental indicators, to that which we give to GDP (Dietz & O’Neill p123-4). Most people are not fully aware of what GDP measures. If they were aware of its limitations they might realise that it does not measure at all well what they value most in life, and be willing to ‘knock it off its pedestal’.

‘In 2008 a group of highly respected economists and scientists led by Pavan Sukhdev, then a senior Deutsche Bank economist, conducted an authoritative economic analysis of the value of biodiversity. Their conclusion? The cost of the business activities of the world’s 3,000 largest corporations in loss or damage to nature and the environment now stands at $2.2tn per year. And rising. …. To quote Sukhdev: “The rules of business urgently need to be changed, so corporations compete on the basis of innovation, resource conservation and satisfaction of multiple stakeholder demands, rather than on the basis of who is most effective in influencing government regulation, avoiding taxes and obtaining subsidies for harmful activities to maximise the return for shareholders.”’ Stephen Emmott, ‘Humans: the real threat to life on Earth’ The Observer 30/06/2013
Dietz & O’Neill (2013,ch9) cite (p115) the four pillars of ‘gross national happiness’ identified by the Bhutanese government:
1. promotion of equitable & sustainable socioeconomic development
2. preservation & promotion of cultural values
3. conservation of the natural environment
4. establishment of good governance.

The UN ‘issued a resolution in July 2011 calling on all member states to pursue measures of happiness and wellbeing to guide public policies.’ (p115)

A range of measures, and their use in different countries, are discussed.
WG 2.3 investments in jobs and infrastructure

rationale for inclusion: we need a range of reforms to ensure that investments optimise well-being ‘in the round’, and facilitate an economy that operates within environmental sustainability constraints.

Duncan McLaren of FoE, in a paper for a business audience in 1995, argued that the firm of the future would be one that made optimal use of the human resource and minimal use of finite energy and physical resources. But Dietz & O’Neill (2013, p129-30) point to misuse of increased labour productivity for the production of extra (and unnecessary) goods rather than reduction in working hours

also rel to WG 3.2 – see WG3 document

and the mismatch between the kind of jobs supplied by the economy and the jobs that society actually needs to be done. Jackson (see below) points to one problem arising from firms striving for increased profitability through increased productivity: it is very difficult to achieve productivity gains in those jobs that provide both a worthwhile service to people and satisfying work for the employee.

Dietz & O’Neill (2013, chapters 10 and 11): at the level of the firm, they point (p142) to an intrinsic problem in the ownership structure of the modern large corporation – or the PLC in the UK: ‘it is legally bound to maximise profits for the shareholders – an interest it must put above all others.’ They discuss (p146-151) the case for structural reform of business, including:

promotion of new business models that generate shared value (such as businesses providing customers with specific results or functions rather than goods – warm homes rather than fuel, etc);

creation of business structures that are less prone to growth – that are legally obliged to take into account employee and/or/consumer and/or community interest in some way (such as co-operatives, social enterprises, community interest companies);

adoption of new measures of success for business, that take into account social and environmental impacts.

Jackson (2009 ch 8) discusses economic strategy in more detail: he calls for a ‘robust, ecologically-literate macroeconomics’ (p123) with ‘low-carbon economic activities that employ people in ways that contribute meaningfully to human flourishing’ as the basis for it.

An economy needs to deliver “Capabilities for flourishing. The means of a livelihood, perhaps through paid employment. Participation in the life of society. A degree of security. A sense of belonging. The ability to share in a common endeavour and yet to pursue our potential as individual human beings.” (p194).

He sees an important role for what he sees as the existing ‘Cinderella economy’: ‘local or community-bases social enterprises: community energy projects, local farmers’ markets, slow food co-operatives, sports clubs, libraries, community health and fitness centres, local repair and maintenance services, craft workshops, writing centres… local training and skills… maybe even yoga (or martial arts or meditation), hairdressing and gardening.’ (p130).

But could this economy provide for all our needs, certainly in a way that would win the widespread support necessary for political acceptance? The scope for productivity improvements in this sector is extremely limited, so our craft products, local services would be very expensive in relation to our incomes. Jackson argues then for very specific changes to the more conventional economy (p133):

“… shifting the focus of economic activity from one sector to another has the potential to maintain or even increase employment, even without economic growth.” but “there are reasons not to accept declining labour productivity across the economy as a whole… even maintaining stable prices relies on increasing labour productivity.”

So labour productivity needs to increase, mainly in the more conventional economy. (p134): “If labour productivity increases overall, then the only way to stabilise output is for the total hours worked by the labour force to fall.” To avoid increasing unemployment that means ‘systematically setting about sharing the available work more evenly across the population.”

Work sharing is a key component of his strategy and he discusses the options (p134-6).

rel to WG 3.2 – see WG3 document

He also cites German and Danish experience which concluded that ‘a stable and relatively equal earning distribution’ is a fundamental pre-requisite for redistributive working time policy (p136).

rel to WG 3.1 – see WG3 document

Jackson also argues for a different focus on investment policy: less locus on increasing labour productivity (though there will be some, especially in those areas where the work process is dangerous or alienating). It will need to be targeted at innovation directed towards sustainability goals, ‘to focus on resource productivity, renewable energy, clean technology, green business, climate adaptation and ecosystem enhancement’ – the ‘kind of targets that emerge from the consensus around a global Green New Deal’ (p138 – discussed in his Ch 7.)

But he emphasises that this investment needs to financed by substituting savings for consumption, not by borrowing (p138). He also discusses the rate at which investment needs to take place, and the role of the public sector in supporting these investments investment.

The literature extracts cited above are just meant to help define the initial agenda’s for the different working groups, and to be starting points for further exploration of research and ideas. See References for Joy in Enough Working Groups. WG members will come up with different and better sources over time. Note that the different groups may operate at the different levels of society – political, parochial, personal. The first two will be more concerned with the national and international political levels, the next three may cross all three levels.

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Author: poppy | Date: 14 September, 2013 | Category: Economics | Comments: 0

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