[This is a talk given to the Canberra Hub of New Economy Network Australia, 23 June 2019 on the topic ‘What could our economy look like in 2030?’ Check out NENA, I think it is a very promising network.]
I think it is possible to change that, so the larger economy supports clean, local, healthy living, strong communities and a thriving planet.
First, a few examples of good things that are already happening and just need to be promoted, examples involving food and energy:
Regenerative farming works with natural ecosystems to draw on their resilience and productivity. Perennial native grasses are deep rooted and well adapted to this land, surviving dry spells and pests. Regenerative farming pulls carbon out of the atmosphere and puts it back into the soil. Regenerated soil can hold far more water than the dead soil of industrial monocultures.
Clean electricity generation and storage is basically a solved problem. Wind and solar are abundant and cheap. The best storage option is pumped hydro: pairs of small to medium reservoirs, located away from main rivers. When power is abundant water is pumped from a lower reservoir to a higher reservoir. When power is needed, water is run back down through a turbine and into the lower reservoir, ready to be pumped back up. It is all mature technology, just put together in a new way.
Hydrogen is the ultimate clean fuel – its wasted product is water. It can be made from water, using clean electricity. A hydrogen industry is already starting in other countries. Australia will miss out unless it is fostered here. The ACT, with its abundant clean electricity, is well placed to promote a hydrogen economy.
These innovations are all fine, but we need to engage people with this potential. To do that we have to use the language of the mainstream: jobs, the economy, the cost of electricity, house prices, education costs and so on.
This means we have to use the e-word. We have to explain how to get the economy to serve people and to save the planet. It is possible. It is just waiting there for us to wake up.
I will use a strong word because I think it is justified. Current economic management is moronic – aside from perverse goals like making the rich richer, the economic managers fail to understand how a market economy works, where money comes from, how the Federal budget can work, private sector debt bubbles, parasitic financial markets, and more. To monitor their management the managers measure activity that involves money (aka the Gross Domestic Product), rather than measuring the wellbeing of people; thus they promote money over people. They are stuck in the fantasy of eternal growth. It’s a wonder we function at all.
Unfettered competitive markets are destroying everything worthwhile. They are doing this because they off-load costs onto people and the planet, and because they are driven always to produce MORE. They cannot just do enough.
But well-structured and well-managed markets might promote healthy people and a healthy planet. The key is to look at incentives. What are the incentives that firms operate under?
At present the incentive of most business firms is to produce more and more and to cut costs to the bone. The result is more and more stuff, exploited people and a polluted world. The firms have no choice, because if they don’t do these things they will be out-competed by other firms. We have to look at the incentives we impose on corporations, as Tim Hollo argues.
On the other hand, Interface Carpet Inc., a billion-dollar corporation, switched from selling carpet to leasing carpet. They provide a floor covering service. This switch reversed their incentive. Instead of maximising profit by producing (and dumping) as much carpet as possible, their incentive was to make durable, easily replaced, recyclable carpet. They redesigned their product to make it tougher, and easier to recover and recycle. They invented benign dyes to replace toxic dyes. And they doubled their profit. They use clean energy. Their goal is to be a company that nurtures people and the planet, in the same way a forest does.
Incentives can also be managed through taxes, subsidies and regulations, so the good stuff is profitable. That’s the idea behind a carbon price, though it has usually been badly implemented. Tax the bad stuff, call them brown taxes, and use the proceeds to subsidise the good stuff that is struggling to get established. At present we subsidise fossil fuels with around $10 billion of public money per year. Instead, we could use the coal industry to finance the hydrogen industry.
Of course such market intervention is against the current economic religion (and I use that term advisedly). The mainstream theory of markets is an abstract fantasy that has nothing to do with real-world economies. In that fantasy world everyone can predict the future. Everyone is an asocial brute materialist that calculates their optimal path through life – I call them calculating reptiles. There are no social interactions and no economies of scale. The economy tends to a mythical optimal equilibrium in which all supplies just balance all demands.
In the real world, we are highly social beings, economies are full of instabilities and the future is intrinsically unpredictable. The mainstream theory is not just a poor approximation to reality, it is radically different from reality, as different as a rocking horse from a brumby. It is grossly misleading.
Mainstream economists failed to anticipate the Global Financial Crisis, that wrecked millions of livelihoods, and lives, and whose effects continue today. That’s because in their theories they exclude money and debt. Financial crises are caused by too much debt.
The Hawke-Keating Government deregulated the banks. Banks make most of their profit from loans. They threw money at entrepreneurs like Alan Bond. They inflated a debt bubble. The bubble burst in 1990, triggering the worst Australian recession since the Great Depression. It still retains that distinction. I call it the Keating Recession. Interest rates hit 17% and unemployment hit 11%. Angry, unemployed older white men became Pauline Hanson’s constituency.
Banks were much more closely regulated in the 1950s and 60s. Credit was restricted if the economy became ‘overheated’. We need to regulate the banks again, and restrict them to being a minor sector serving the productive economy.
Financial markets trade about 50 times faster than is needed by the productive economy. This happens because the markets are being gamed. The gaming magnifies their fluctuations, which impedes the productive economy. It siphons wealth into the gamers’ pockets. The financial markets are destabilising and parasitic. We need to restrict them also to being a small service sector, as they used to be. If we charged a small tax on every financial transaction it could take the profit out of the speculation and improve the efficiency of the productive economy.
In the 1950s and 60s unemployment averaged 1.3%. That is regarded as impossible by today’s economic managers. The economy back then was managed to keep it going at full steam instead of carrying the burden of 5% or more unemployed.
GDP growth averaged over 5% in the postwar decades. Strong unions ensured a good share of the wealth flowed to employees, and the lives of many Australians improved markedly.
We should not maintain such growth indefinitely, we are quite rich enough by now. The problem is the rich get most of the loot. The system is rigged to pump much of the wealth upwards. That can be fixed. Progressive taxes, government services and regulation of finance can play a role. But we could fix a lot of inequality at the source by encouraging collective ownership – for example by employees, by local community ‘stakeholders’, by suppliers.
We can wrestle the demon growth by distinguishing growth of quality from growth of quantity. At present our system is geared to produce more and more stuff. It is a once-through system: extract, use once and dump.
We can reverse the growth of material use by developing a circular economy that recycles most materials. That is what Interface Carpet is doing. That is how the living world works. There are many examples of innovative recycling and there is great scope for extending it through the economy.
With good incentives and smarter management we can improve the quality of our lives, without limit. Do we have enough material goods? Are we less stressed? Are our children healthier? Are our communities strong? Is pollution declining? Is global warming being tamed?
In my vision for 2030, the goal of economic managers is quality of life. Healthy food is grown on healthy land. Electricity is 100% clean, and the economy as a whole is 75% clean. Banks are a small service industry, debt is low, unemployment is low, inequality is dropping and working hours have dropped. Our society is less divided, social problems are declining and local communities are strengthening.