A new economics . for people, for communities, for life - Dr.

Michael Towsey
I was asked to keep this talk positive – not to spend my time describing problems. This is good advice -- we need solutions. I will assume that we all share a common concern about environmental destruction, breakdown of communities and social and economic injustice. The question is what to do about it? This is a big question because there are apparently so many diverse problems. I will approach it by painting a big picture. The detail can come later. My starting point is that any proposals for improving the world have to be informed by the wisdom that human beings have already accumulated. And the good news is that there is plenty of it! To keep things simple, I like to think that there are three primary traditions or sources of wisdom upon which we can draw ……. (1) The environmental – goes back into pre-history and involves the indigenous people of the planet (2) The spiritual – already with us 10,000 to 12,000 years ago and apparent in the Vedas of the Indian subcontinent which are considered to be the first human literature and mark the boundary between pre-history and history. (3) The humanist – already apparent in Greek writing 2500 – 3000 years ago and must have been crystallising before that. NOTE: In this talk, I am using the terms humanist and humanism in their broadest sense - as the ideal which motivated European civilisation over the past 2000 years or so. I am not using these words in the narrow anti-religious sense which came later in the 19th and early 20th centuries. One of the great achievements of 20th century philosophy was to make a synthesis of these three traditions. The synthesis was driven by a number of thinkers particularly feminist writers. Possibly the most well known name associated with the project is Ken Wilbur. He developed the integral philosophy and has strong following in the USA. However I will take as my starting point the approach adopted by Prabhat Ranjan Sarkar, the Indian philosopher, 1921 - 1990. I have two reasons – (1) He started on this project in the 1950s probably before many of us in this room were born; and (2) Because Sarkar’s approach underpins a comprehensive economic theory known as Prout. Sarkar calls his synthesis of these three traditions – Neohumanism. So why do we want a synthesis? Because each tradition by itself is incomplete – or put another way – each tradition can be enriched by the others. What is humanism? The most succinct definition is still that attributed to the Greek philosopher Protagoras 2500 years ago, who declared that “humans are the measure of all things”. It means that human dignity and human welfare come before the dictates of kings, queens and priests. It is an amazingly bold idea – but says Sarkar, it is not

enough! If “humans are the measure of all things”, then what about plants and animals? Where do they fit into the scheme of things – are they just our slaves and play things? CONCLUSION: The humanist tradition needs something else - an enrichment of environmental wisdom. And if “humans are the measure of all things”, then what can we say about the future, about what humans can become? CONCLUSION: The humanist tradition needs an enrichment of spiritual wisdom. For the remainder of my talk I want to look at what contribution these three traditions make to our understanding of economics. The photo is of Rachel Carson, whose book, "The Silent Spring" published in 1962, is justly credited with founding the contemporary environment movement. Well, the contemporary movement certainly, but environmental wisdom can be traced back to indigenous peoples all over the world. This book (left side) by Knudtson and Suzuki – "Wisdom of the Elders" – makes the case. The book begins by asking a simple question – what do we mean by indigenous? How to identify indigenous people? (1) They are the original people of a place. (2) They have a distinctive culture - “they have a profound and deeply rooted sense of place and relationship with the entirety of the natural world. QUESTION: How would a deeply rooted sense of place and relationship with the entirety of the natural world alter our understanding and practice of economics? What would our economic system look like if it incorporated this wisdom? The answer has many ramifications but I want to consider just TWO MAJOR IDEAS: (1) the idea of natural communities; and (2) the idea of an economy as a living system. This slide shows Aboriginal tribal areas for northern NSW - Sydney to Brisbane. These boundaries are based on linguistic evidence. Question – what factors shaped these boundaries? Observation – tribes living closer to the coast occupied smaller area of land. There are three factors at play. (1) There is an optimum size for a community depending on its culture and technology. When a community becomes too big it fragments and becomes harder to maintain as a cohesive unit. When a community gets too small it ceases to enjoy the advantages of scale that come from people living and working together. In between is an optimum although it

may be quite a broad optimum. (2) Bioregion – communities are more closely knit when they face the same kind of problems and they face the same kind of problems when they live in the same bioregion. Furthermore they will adopt the same technology to solve those problems. (3) Carrying capacity – land has an economic potential or to use agricultural language, it has a carrying capacity. Obviously land nearer the coast has greater biological diversity and rainfall and therefore greater carrying capacity. Less land is required to sustain a population of a given size. Conclusion – Natural communities arise out of complex interaction between culture, bioregion and the economic potential of the land over a long period of time. These three cannot be disentangled. One of the great defects of economics as taught in universities today, is that it consists of abstract mathematical models devoid of real people and real places. Communities are formed by the interaction of environmental, social, historical and economic factors. Note that communities must be large enough in order to be self-sustaining. Note also that common religion is not accepted by Sarkar as the sole basis for a community. Consider for example, the previous Pakistan (East and West) which split into Pakistan and Bangladesh. Different language, different history, different ethnic identity split the previous nation of Pakistan, despite common religion. The second important contribution of environmental wisdom to economics is the notion that an economy is a living organism. More accurately an economy is the metabolism of a living organism. Living things have two important properties that are relevant to economics. 1. Firstly, all living things have a boundary. Animals have a skin and cells have a semi-permeable membrane which allows selected substances to pass in and out according to the needs of the cell. 2. The second property of living organisms is that they attempt to maintain constant internal conditions, despite an external fluctuating environment. Humans maintain constant levels of glucose and pH in their blood. Cells maintain constant proportions of potassium and sodium ions and so on. This is known as homeostasis. If an economy is a living system then its health depends on similar organisational principles. An economy has its border – a physical border with customs posts and a virtual border in the form of trading and currency exchange regulations. It has imports, exports and waste. Within an economy, we expect to maintain a homeostasis which in this case means a continuous supply of essential goods and services at stable prices, despite an external fluctuating global economy. In the neo-liberal agenda, free trade and the deregulation of commerce can have the same effect as stripping the skin off an animal. In the worst case it bleeds to death. The struggle to maintain homeostasis is an IMPORTANT PROPERTY OF ALL LIVING SYSTEMS!!! whether biological or economic. Sarkar expresses this truth by defining life as

follows: * Life is a never ending struggle to maintain an unstable equilibrium. We all experience the truth of this in our personal lives. We continually attempt to be not too hot, nor too cold. Not to eat too much, nor to eat too little. On the psychological level, we struggle daily not to be too cocky and over confident, nor to be timid. We try not to be loud and over-bearing but nor to be a church mouse! Strange though it may seem, these concepts have tremendous significance for economics. An economy attempts to maintain constant conditions far from equilibrium (with outside). The difference between a stable and an unstable equilibrium can be illustrated by the difference between balancing a broom upright on ones finger tip versus letting it hang loosely. When the government asks it economic advisors to calculate the effects of a free trade agreement or deregulation of the banking system, economists will crunch the numbers through their models and come back and say – “Yes! After a period of adjustment, the economy will come back to a stable equilibrium and everyone will be better off.” What is the problem? The mathematical models being used have been borrowed from physics and are models of non-living systems (enclosed inert gases for example), that is, dead systems. But an economy is a living system and the maintenance of a living system requires constant attention. It is a hands on, not a hands off job! If you want to go into this deeper in a non-mathematical way, then I suggest this book by Geoff Davies. He is a physicist, but he introduces the ideas in a nice way. He also has a good section on alternative economic indicators and monetary reform. But for now the message is:(1) Living systems struggle to maintain an unstable equilibrium; (2) Dead systems find a stable equilibrium without trying; (3) An economic system belongs to the former category! To quote Sarkar again, “A socio-economic-structure is a biological structure … goaded by psychology. It has to obey rules and norms.” And what are those rules? They are the rules of selforganising systems attempting to maintain an unstable equilibrium – living on the edge of chaos. We now bring together these two ideas - "natural communities" and "economies as living systems“. How can we apply these two concepts in Australia? The left image is a slice through the human pancreas. Individual cells may be compared to small local communities – each maintaining its own economy. Cells are clustered in tiered arrangement and the whole system is inter-connected by lines of communication and transport. The equivalent in Australia would be a federation of natural communities: 1. Cells = local communities or local government areas (LGAs). 2. Clusters correspond to bioregions or sub-regions. The role of the federal level is to maintain the integration and to supervise the infrastructure,

transport and communications that links natural communities. Then you might ask what is the role of the states in Australia? The states are accidents of history. NSW has 18 bioregions and only two of them exist entirely within NSW. In order to get effective environmental management on a bioregional level, the states themselves had to go to the national level in order to organise things properly. Tasmania is the only natural state! The remaining states do not correspond to bioregions. This says something about the future of the states in Australia. We now turn to economics and the wisdom of the humanist tradition. Definition: Protagoras 2500 years ago, declared that “humans are the measure of all things”. Why is humanism important? Because European history can be interpreted as the struggle to establish the humanist ideal in the face of determined opposition from so many kings, queens and would be tyrants of one sort or another. The Divine Right of Kings was still accepted even 400 years ago. The Divine Right of Kings was succinctly stated by King James 1 to the English parliament in 1610 – “Kings are not only God’s lieutenants upon earth and sit upon God’s throne, but even by God himself they are called God’s.” As Alexander Pope later noted the divine right of kings was actually the right divine of kings to govern wrong. Nevertheless the idea continued to be influential for another three hundred years. Today we consider the idea an incredible arrogance! But we had better not be too smug. Today we have our own version of the divine right of kings – it is called the divine right of corporations. And this is what it means in my own home town, Maleny - the struggle with Woolworths. 80% of the town's population do not want Woolworths because experience shows that Woolworths engages in predatory pricing tactics to put local retailers out of action. It took 130 police to bring Woolworths into Maleny – that is like an invasion. Large corporations can shift vast amounts of wealth and shift factories from one place to another with out a care for how it affects the lives of the people who depend on those factories. Somehow we accept the divine right of corporations as part of the natural order of things. Politicians defend them, newspapers praise them and the law protects them. I expect that in future we will look upon the Divine Right of Corporations with same disbelief that we have for the divine right of kings. But what to do about it? European history can be interpreted as the struggle of humanist ideals to overcome the divine right of kings. The outcome of this struggle was the establishment of political democracy and the separation of powers. That is, the separation of legislative, executive and judicial power. But it did not happen overnight – it took several centuries but is now so ingrained in our thinking that we are not aware of how precious it is. Humanism is Europe’s gift to humanity, in the same way that South Asia’s spiritual tradition is a gift to humanity. But the job is unfinished!

The unfinished part is the establishment of economic democracy. How can that be achieved – by the establishment of another kind of separation of powers – the separation of economic power from political power - by centralising political power and decentralising economic power. What does this mean? It means self-reliant communities. This does NOT mean no-dig gardens! Nor does it mean producing everything for ourselves. From a Proutist perspective, a self-reliant or self-sufficient economy is one which can produce the essential requirements of life for its population and can also produce sufficient export goods to maintain a balance of trade. The importance of being able to produce one’s essential requirements is that it enables economic independence. When Argentina recently considered to withdraw from a free-trade agreement, it discovered that it did not produce insulin (not a high-tech commodity with today’s technology) and that the USA would refuse to supply insulin under these circumstances. Argentina is a large country with political independence but not economic independence. In Prout’s view, free trade in non-essential commodities is advantageous but essential commodities require a different approach. Essential commodities include the basic necessities of food, clothing, housing, education, health care and the minimal energy, transport and communications required for access to them. For essential commodities it is wise to pursue a policy of self-sufficiency or independence. Pursuit of self-sufficiency in food, for example, is sometimes called food sovereignty. Sarkar argues that the best way to achieve economic self-sufficiency in essential commodities is to decentralise – that is, to give local communities control over their economic destiny. How can self-reliance be achieved? (1) Support and maintain locally owned businesses. The advantages of locally owned business: - they will not suddenly shut down and shift to another country where labour is cheaper or children are forced to work for nothing - they can raise environmental standards and workplace safety standards without the business threatening to go to a country where the standards are non-existent. (2) Build a strong cooperative sector. Some advantages of cooperatives: - They are owned by the workers. This means profits and rewards of productivity increases go to the workers and therefore stay in the local community. - They do not disappear to anonymous shareholders in some other part of the world. - Cooperatives have strong links to their communities. (3) Build a strong not-for-profit sector. (4) Regulate imports and exports of essential commodities. Local communities have to have some control over what wealth is imported and exported. (5) A rational system of resource taxes – to protect our common heritage.

(6) Establish a strong cooperative banking sector supported by a central bank. (7) Scientific research to support economies of decentralisation. Our traditional democratic system has three independent pillars – legislature, executive and judiciary. Sarkar is strongly in favour of the separation of powers, but argues that a fourth pillar is required – the AUDIT branch. ROLE OF THE AUDIT BRANCH OF GOVERNMENT · bureau of statistics · calculate economic indices – measures of welfare, economic progress etc · monitors the independence of self-reliant communities · audits government accounts at federal and local level. · functions as the exchequer and manages the central bank. Note that the role of preparing the budget remains with the legislature because this is a policy issue. We can now revisit the idea of self-reliant natural communities. The whole is a federation of natural communities, with constitutional protection to protect local communities from the predatory activities of multi-national companies. We now turn to the third of the great traditions, the spiritual tradition and examine what it can contribute to economics. Spirituality is the constant endeavour to maintain one’s connection with spirit. And what is spirit? We may understand it as the source, the well-spring of all that is remarkable about the human species, our courage, our compassion, kindness, generosity. What does this tradition have to contribute to economics? We can step through the argument as follows: (1) The spiritual tradition tells us that human beings are not just interested in food and fashion. We have a spectrum of needs, physical, emotional, social, intellectual and spiritual. (2) The spiritual tradition tells us that, in order to be happy, our needs must be satisfied in a balanced way. Satisfying a spiritual hunger without taking care of basic physical needs is as dangerous as living life for physical pleasure and denying spiritual needs. (3) Principle – for every human need there is a natural or human made resource to satisfy that need. If this were not true, our species could not survive and economics would be meaningless. (4) We need an economic system which acknowledges the diversity of human needs. A good standard of living requires the management of the full spectrum of resources. (5) We need accounting systems to account for all the components of a good standard of living, including the non-physical or abstract components. Traditional economic indicators are inadequate. As Ralph Nader famously pointed out, every car crash contributes positively to GDP. Furthermore increasing per capita GDP (the traditional indicator of economic welfare) does not take into account the unequal distribution of income. We need new economic indicators, new measures of economic welfare.

Helen Henderson and colleagues have developed the Calvert-Henderson Economic Indicators. The Calvert-Henderson indicators can be divided into two groups - those which are denominated in money units and those which are not denominated in money. The above list of indicators belong to the first group. Note the inclusion of a measure of income distribution and a measure of real purchasing power (that is, corrected for inflation). Sarkar notes that two important measures of economic advancement are a decrease in the gap between rich and poor combined with an increase in real purchasing power. These two should be in balance. Note that a complete absence of incentives (and therefore no gap between rich and poor) would lead to a general decrease in real purchasing capacity. The second group of complementary indicators are non-monetary. The Calvert-Henderson indicators have been developed by experts in the different areas and by statisticians. They attempt to paint a broad picture of the quality of life in a nation. When indicators like these are applied to the economy of the United States, it is observed that there was an increase in well being up to about 1972 and a decline thereafter. It is interesting to note that that this date corresponds to the weakening of the global financial system due to the Vietnam war and the oil crisis. These complementary Calvert-Henderson indicators can be thought of as an attempt to apply triple bottom line accounting at the national level. The Index of Sustainable Economic Welfare (ISDW) is another approach to economic indicators authored by Herman Daly and John Cobb. It attempts to formulate a single monetary indicator reflecting quality of life. What does this indicator tell us about economic progress over the past 50 years? Friends of the Earth has a web site where you can experiment with your own ISDW indicators by weighting the different indices. While traditional GDP continues an upward trend over the past 50 years, the ISDW takes a downward turn somewhere around 1974, depending on how you weight the contributing indices. New economic indicators are for the MACROECONOMIC level. But the microeconomic level has its complement – triple bottom line accounting. The basic idea is that all businesses produce three kinds of value: financial value, social/community value and ecological value. The triple bottom line is a way of accounting for the net value added in each of the three areas, financial, social and environmental. The key concept is that a sustainable business must have positive balances in all three columns. Some are now arguing for additional bottom lines eg ethical and spiritual balances. This arises from collapse of Enron etc. “Enron’s senior management failed to maintain a relationship with of openness and trust with employees. Senior management cared more about self-enrichment than the needs of employees. They showed little regard for meaning and ethics beyond the bottom line. Enron’s deficiency in social-spiritual capital proved to be fatal!” Refer: Paul Wong, (2002) “Lessons from the Enron Debacle: Corporate Culture Matters!” These ideas are being incorporated into mainstream accounting. See for example, the New Zealand Journal of Accounting.

Here are some definitions of community. - Community – (Latin) to give among each other. - Sergio Luio - A group of people who do favours for one another. - Bernard Lietaer – A group of people who exchange gifts. - P.R.Sarkar - Samaj - a group of people moving together as one family. The first three emphasize the idea of empathic sharing or giving between members of a community. Note that the idea of exchanging gifts is very different from the idea of buying and selling in a market. Commodity markets do not alone make a community. Sarkar's definition adds in the dynamic or temporal component - that is, it adds the historical and futures component to a community. Communities as networks:Social Capital describes the relationships between people. Some economists such as Prof. Tim Hazledine argue that social capital is like any other economic resource - it can be produced and used up. If you use it up with out replacing it, you are in big trouble. Margaret Thatcher - "There is no such thing as society – there are only individual men and women.“ The modern economic trend is to ignore social capital and indeed to deny the importance of community. Networks are a powerful unifying concept because we can generalise it. The brain is a network of neurons, an ecosystem is network of animals and plants, a community is a network of people and an economy is a network of businesses and social institutions. This is the central theme of Fritjof Capra’s recent book, “The Hidden Connections”. That concludes our discussion of the contribution of the environmental, humanist and spiritual traditions to economics. Did you notice that all the new ideas I called upon came from philosophers and scientists? Where are the economists? This diagram offers a conceptual framework to integrate the many ideas that have been introduced in this talk.