Economics with values

The rise in the World Economic Forum’s Global Confidence Index last quarter is good news. The world, as a whole, looks more likely now to avoid a double-dip recession. In my own country, the United Kingdom, we have just heard that we have probably narrowly avoided a triple-dip recession, somewhat lessening the scourge of unemployment and underemployment.

However, I believe we would be making a terrible mistake if we breathed a collective sigh of relief and thought we were back on track for business as usual. There are major fundamental problems that we are failing to address.

First – and most importantly – we are failing to address the fact that for the first time in human history we have come up against and then driven through our planet’s ecological limits. Nick Stern, author of The Stern Report on the economics of climate change, now reckons we are on track for a 4ºC degree rise in global temperature compared to pre-industrial levels; all experts agree that a 2ºC rise is the highest level we can safely contemplate without incurring totally unacceptable risks. Summer Arctic sea ice cover has decreased by one-half in area and three-quarters in volume compared to 1980. A similar story is seen when we look at the risk to ecosystems such as top soil, pollination systems, fresh water and fish stocks.

Second, massive rises in inequality within many countries means that rises in GDP will not create as many good jobs as in the past. The wage share of GDP has fallen in many countries with a resulting decrease in demand and job creation. Greater inequality also means that lifting everyone out of poverty requires a greater level of GDP growth and, hence, more ecological stress than if equality was greater.

Third, we have not solved the sustainability of our financial systems. The IMF stated last year that the threat of a further banking crises was nearly as high as in 2008. Furthermore, as Carbon Tracker and The Grantham Institute showed recently, between 60% and 80% of the coal, oil and gas reserves of publicly listed companies are “unburnable” if we want to avoid runaway climate change – an unviable choice between frying the planet and risking further financial crashes.

In summary, in our current economic model – even with “heroic” technological change – we face a massive dilemma of how to create enough new, good jobs and remain within safe planetary limits. Getting our foot back on the economic accelerator is no longer the answer. We need a new model.

This means moving to economic systems that maximize well-being and job creation as their prime goals, together with aiming for levels of equality (like that in Scandinavia) while ensuring that this is done within planetary limits. This requires not just different economic goals, but also different measurement systems, incentive systems and institutional structures. It also requires us to employ radical solutions, like overt money creation to recapitalize banks and write-off “unburnable” fossil fuel assets (Japan’s current experiment in addressing their balance sheet recession through money creation is going to be very interesting to watch).

Above all, though, it requires us to undergo a major shift in values. The values of human dignity, and economics of the common good and stewardship need to underpin our economic institutions and systems if we are to solve the problems humanity currently faces.

Author: Stewart Wallis is Executive Director of the New Economics Foundation and a Member of the Global Agenda Council on Values

Image: A globe is part of an installation in Copenhagen REUTERS/Pawel Kopczynski