The new economy I: The nature of consumption and production

Within the subject itself, there is a great deal of debate over theories of consumption and production, which might inform a New Economics. Taking a departure from classical and neoclassical fundamentals of value and reorienting the principles of market economics requires, inter alia, that the very nature of consumer demand, productive capacity and the use of technology be fully explored. Marglin argues for a reduction in productive capacity in the Global North, upon the basis that 20th-century capitalism has delivered the solution to the basic economic problem: On an aggregate level, we do not require production to increase in volume to meet basic consumer needs for a decent standard of living for all. As Marglin puts it, we no longer need increased aggregate production of food to feed the hungry, nor clothing to dress the shivering. Indeed, it may be considered that the solution of the Malthusian problem represents the triumph of the neoclassical emphasis on unbridled increases in productive capacity. This fixation on productive capacity, Marglin indicates, however, has over-delivered; the consequent hangover must be remedied by reducing productive capacity. Indeed, despite being politically difficult, reducing productive capacity would certainly reduce consumer demand, and thus contribute to ecological welfare. However, we argue that with respect to the needs of a planet facing the problems of climate change and growing inequality, the issue of productive capacity and consumption is rather more nuanced, and therefore, an approach of mere adjustment is not enough. Rather, rampant consumerism (and the production that feeds it), which does not lead to improvements in human or ecological well-being, should be actively reduced; productive capacity needs to be redirected towards green technology and research.

The idea that production and consumption might be each treated homogeneously is an axiom of conventional macroeconomic theory that is criticised in the work of Keynes, Minsky and Galbraith, respectively. Each emphasises the idea that consumer demand is a non-homogeneous concept and complex and subjective – based on a combination of basic needs for decent living standards and unlimited desires or psychological consumption (Reference KeynesKeynes, 1936). Reference GalbraithGalbraith (1969) cogently argues in The Affluent Society that the role of the economist is therefore not to merely match consumer demand with productive output, but rather to understand the origin of consumption wants. This argument can offer some insight into how consumer demand and productive capacity might be weighted in Marglin’s New Economy, when comparing the urgency of consumer needs to the ecological needs of the planet.

We would explicitly reject neoclassical assumptions of non-satiation and the pursuit of infinite productive capacities, in a world of dwindling resources, climate change and deterioration of the global commons.^{Footnote 1} Certain types of non-essential production need to be actively reduced and redirected towards providing and equitably distributing basic consumer needs, because they are non-essential in terms of marginal utility and exist to continue turning the mangle of current emphasis on increasing volumes of production. This type of production for production’s sake includes deliberately short shelf lives for products, such as the light bulb cartel of the 1920s and today’s Apple products. These instances demonstrate where manufacturing production has the deplorable incentive to create waste for the purpose of profit-maximisation. Moreover, this specific type of production that permits, encourages and feeds non-essential consumer demand should be discouraged because it is fundamentally driven by championing exclusivity and thus worsens the problem of inequity both among communities and across the globe. The adage of consuming ‘because we can’ is examined in Reference KeynesKeynes (1936) and later Reference MinskyMinsky (1975). The global middle class (which the Brookings Institution Reference Kharas and GertzKharas and Gertz, 2010, estimates will grow in number from 1.8 billion in 2010 to 3.2 billion in 2020 – with 1.7 billion in Asia alone) represent an increasing culture of aspiration, comparative living and ‘keeping up with the Joneses’ as a specific type of consumer demand. These involve the demands ‘relative only in that their satisfaction lifts us, makes us feel superior, to our fellows’ (Keynes quoted in Reference MinskyMinsky, 1975). It is this regard for personal superiority that permits consumerism via irresponsible advertising campaigns^{Footnote 2} and artificial market segmentation according to consumer social classes, as pioneered by General Motors during the 1950s. Since the dawn of the media age and the resultant influx of celebrity culture, however, it is not only the Joneses that today’s increasingly middle-class consumer base feel the need to keep up with.

As such, we can see that certain types of production that feed wasteful and inequitable consumerism should be reduced. However, reducing productive capacity as a whole in the Global North must on no account hinder research and development of sustainable technology. Like basic consumption needs of food, shelter and clothing, productive capacity in the right direction can bring essential technological progress to counter climate change and improve human welfare. On this point, we differ substantially from Marglin’s perspective; we believe in green and sustainable technology as the long-run solution to welfare loss. For instance, Reference SolanaSolana (2014) refers to the successes of creative initiatives that have been pursued in China, where seven pilot emissions-trading schemes now cover quarter of a billion people. Dyson’s progress in low-energy vacuum cleaning technology has withstood recent European Union (EU) legislation over suction power. Likewise human productive and technological capacity has permitted solar-powered hybrid airships to reach testing stages for imminent large-scale commercial use. Similarly the movement from non-renewable to renewable energy sources requires a great deal of technological effort and investment. The Global Apollo Programme, pioneered by Sir David King, aims to create a fund of USD10 billion a year for 10 years of research into large-scale storage of solar energy, renewable energy and smart grid technology with the object that baseload renewable energy will be cheaper to install than coal-fired power in all regions of the world by 2025. In this sense, Marglin’s argument for reducing productive capacity in the Global North rather underestimates where investments into green solutions might soon take us. We conversely assert the crucial role of technology in the future, which must encourage at every level the traits of creativity, innovation, responsibility and political will.

The new economy II: Valuing the cost of climate change

Any potential aggregate costs or welfare losses that climate change entails are crucial in making policy recommendations. From the perspective of economists, future uncertain costs and benefits must be quantified in order to be politically persuasive. The question of how the New Economy might value the costs of climate change is thus rather more murky than discussions of consumer and producer interactions; the neoclassical economic models for informing the valuation of costs and benefits have historically left much to be desired – and indeed researched. Marglin’s analytical framework on valuation is decidedly non-numerical, yet in its fundamental assumptions on consumer demand and productive output, it manages to imply a rejection of conventional welfare economics that assumes consumer preferences remain sacrosanct. The idea of independent utility functions is displaced by Marglin’s suggestion that we require a change in our value systems which promotes reciprocity; the latter would indicate support for interdependent utility functions and challenge the counterintuitive neoclassical idea that every individual’s selfish behaviour will maximise welfare (Reference Arrow and DebreuArrow and Debreu, 1954; Reference Arrow and HahnArrow and Hahn, 1971).

Marglin is generally optimistic in discussing the cost of remedying the impact of climate change; however, his position on the creation of a New Economy based on ecological economics appears to be somewhat conflicted, as he cites controversial values derived from The Stern Review (Reference SternStern, 2006) in his complementary 2013 paper, ‘What Should a Sustainable Economy Sustain?’ which were widely criticised by many, including Stern’s numerous predecessors in environmental economics, among them Nordhaus.^{Footnote 3} As such, with reference to Marglin’s paper, we might discuss the shortcomings of the discount rate approach to valuation and raise the question of how it might be tackled in a New Economy. The question of posterity is inadequately dealt with under such a simple means of future valuation. For instance, Reference PigouPigou (1920) and Reference RamsayRamsay (1928) first highlighted the welfare implications for posterity with the use of non-zero discount rates such that intergenerational claims automatically become skewed to favour future generations over the current. While this is not inconsistent with Marglin’s (and indeed our) general message of championing sustainable living, the precise rate of valuation loss per annum cannot be calculated. It is certainly worth considering whether there is a more accurate alternative to assigning estimated or arbitrary numbers for the discount rates, given the high margin of error.^{Footnote 4}

In our discussion in this section and the last, of what aspects of sustainability might be debated in forming the basis of a New Economy, the desire is evident for the subject of Economics to become more scientific –, for example, with unchanging behavioural patterns, neoclassical ideals of valuation (efficiency, optimality, long-run equilibrium) and numerical strength for predictive capabilities. However, it is equally evident that the language of Environmental Science differs greatly from that of Economics in both motivation and outcome, due to the human aspect associated with the latter. Interestingly, in attempting to translate economic language into scientific language, we can ask ourselves important questions about the nature of Economics as a subject. In the natural sciences, when theory fits data, it is considered a model until data prove otherwise. In neoclassical Economics, the market model, for instance, has specific and artificial assumptions of perfection. When this inevitably fails to fit data, we counter-intuitively continue to use the very same model – while dubbing this ‘market failure’. The idea that climate change can be considered a market failure is hazardous because this observation gives a false illusion of scientific certainty but tells us absolutely nothing about the dangers of building spurious models based on the assumption of perfect human behaviour and information. These vast ‘market failures’ rather signify that these simple mathematical market models are totally inappropriate to the challenges facing humanity this century. These are questions that a New Economics has to answer.

The new culture: The role of community, equity and a romantic revolution in ideas

‘The world has enough for everyone’s need, but not for everyone’s greed’, noted Gandhi; we argue that we need a New Culture in order to spread broad discussion of the New Economy and for it to be accepted and welcomed both among the world of academic economics and amongst the wider world. The crucial link between global environmental welfare and social justice has been well forged amongst various schools of thought over the last half-century. Yet, the lack of collective commitment to creating an equitable global society has undermined long-run ecological security. A universal top-down approach might today cost between 1% and 5% of global gross domestic product (GDP), depending on levels of conservatism in the calculation of discount rates (Reference Ackerman, Harris and GoodwinAckerman, 2007; Reference SternStern, 2006). However, the Kyoto Protocol and other recent United Nations Framework Convention on Climate Change (UNFCCC) summits have demonstrated the limitations of the sole pursuit of top-down initiatives that do not impact ordinary people (Reference SolanaSolana, 2014). The scale of the behavioural change that humanity must make for ecological sustainability is too great to be only financially or politically motivated. Legislation and incentivisation are necessary but insufficient tools, as they merely prompt short-run change. The New Economy, as Marglin defines it, emphasises the power of the collective: non-commodified opportunities, community ideals and human ideas and connections. We would take this broad idea a step further, and suggest that for lasting environmental sustainability our New Culture would require a broader sense of justice and a deeper spiritual – perhaps theological – change in our common values and our metaphysical relationship with the Earth.

It is not the first time in history that we have sought a liberal cultural revolution with respect to the natural world. The Romantic Movement, which was at its height between 1800 and 1850, was a counter-enlightenment movement that reacted towards the industrial revolution and the belief of humanity’s triumphant divorce from the natural world with the power of science and technology. This idea was perhaps most strongly manifested in the arts, music and literature, though it had powerful political implications. With respect to our discussion on sustainability and our argument for a New Culture today, it is important to re-examine the Romantics and to understand why they saw the world as they did – without being Luddites. Today, the argument for a revolution in our thinking has even greater credibility; it originates from environmental science and is based on strong, painstaking and detailed scientific observation and analysis. The movement towards sustainable living has reunited the concerns of humanity with those of our global ecosystem, and continues to pave the way for a revolution in our culture and perception of universal human values that will inform the New Economy and its associated assumptions.

The treatment of individuals and their preferences in the New Economy must be thoroughly revised to achieve the level of co-operation and community that we need to transform the way we think – emphasising ‘serving the people’ as in China. Though controversial when initially published during the 1970s, the Gaia hypothesis (built on the evolutionary understanding that human beings are creatures who developed in tandem with the global ecosystem, and are thus capable of a circular economic ecosystem without waste) pioneered by chemist Reference Lovelock and EptonJames Lovelock and Epton (1975) and later developed by biologist Reference MargulisLynn Margulis (1998), has been steadily gathering influence and acceptance in ecological debate and is being applied as an analytical framework in various geological fields. Manifesting romantic ideals, the hypothesis centres upon the idea of co-evolution, symbiosis and the dynamic equilibrium of the geophysical Earth and life within it, as a deeply complex system in which all our actions have consequences.

Indeed, the planet Earth is perfectly suited to fit our needs, and we must remember that in adopting the values of a New Culture. We have, for example, precisely the correct ratio of oxygen to carbon dioxide in the atmosphere to work with our respiratory systems and those of plants that we feed on, and we have the perfect amount of gravity on the planet to maintain the atmosphere we require. The specificity of human co-evolution is such that seeking an alternative planet to colonise is a ‘foolish’ (Reference ReesRees, 2007: 89) solution. Reference WilsonWilson (1993) emphasises humanity’s duty to maintain the ecosystem, noting ‘Our body and our mind evolved to live on this particular planetary environment and no other’; while astrophysicist Reference ReesRees (2007) reminds us that, ‘… nowhere in our solar system offers an environment as clement, even, as the Antarctic or the top of the Everest’. This powerful realisation that ‘the Earth fits us’ has, in equal measure, been the argument for theological beliefs for the existence of a higher being which created us perfectly, and for scientific arguments for Darwinian evolution. Either way, the spiritual or metaphysical power of ‘thinking bigger’ will be the driving force of the transformation in thinking that we need today in order to sustain human life on Earth.

Marglin’s New Economics should engage with this metaphysical aspect of co-dependence on Earth, as discussed in Lovelock and Margulis’ hypothesis. It has important macro-level implications for resource allocation and (more importantly) regeneration in a circular (rather than linear) economy in which all waste is accounted for and utilised. For instance, the nitrogen cycle has evolved alongside life on earth to efficiently circulate nitrogen compounds through the air, aquatic systems and soil. However, we have ruined the cycle: plants need nitrates and phosphates to grow, when we eat these plants we produce human waste, which contains nitrates and phosphates and is chemically treated and dumped in the oceans where aquatic life is destroyed; meanwhile, we use atmospheric nitrogen to make nitrates for chemical fertilisers, which is a high-energy process and generates waste (Reference FieldsFields, 2004). This cyclical notion renders each of us similar to a cell within a large planetary organism: on one level, we have needs and subjective preferences, and on a higher level, we have responsibilities and common objectives within a wider system. This may be a thoroughly abstract idea, but it is being applied in policy. In Slough the local government has already pioneered the extraction of phosphates from human waste; conversely Singapore (which suffers fresh water shortages) recycles every drop of liquid waste. In a New Culture, we need to develop a broader spiritual comprehension of ecological cause and consequence and apply it to the New Economy. For example, in addition to the analysis of individual preferences, the interdependent utility function that Marglin implies can play an important role such that policy action better reflects the nature of symbiosis and aligned preference in the current knowledge thinking on climate change (Stern, 2014).