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Pathological economics: A socioeconomic malady

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(Image via abc.net.au)

Stuart Andrews discusses the First World's addiction to “wealth creation” and how long our finite resources can sustain us.

IT ASTOUNDS ME when I read political or economic commentary expounding the need to boost economic growth.

In First World economies, that usually means encouraging greater consumer spending and borrowing — the logic being that our world socioeconomic order will collapse without continued growth. This predicates the economic survival of an entire nation-state on continually increasing consumption.

Right now, close to 70 per cent of Australia’s gross domestic product (GDP) is generated by consumption. The economies of the U.S. and many European countries are also highly dependent on consumer spending and the developing world is aspiring to this same level of economic development.

At the root of this focus on GDP is capitalism. Capitalism as we know it today has its origins in the era of European colonial expansion, which was funded to a large degree by mercantile activity. This was a kind of venture capitalism that required the input of stock by one or more wealthy individuals or state entities to undertake high-risk, high-gain revenue generating ventures.

This investor mentality has underpinned our meteoric growth over the past 300 years. It sparked the industrial revolution and facilitated the growth of democratic governments throughout the industrialising world.

The growth of liberal democracy in Western nations unleashed the creative and productive power of their peoples and this fit hand in glove with capitalism’s profit motive. The industrial revolution combined invention, innovation and economies of scale to facilitate this new-found freedom for the masses to prosper.

More than any other country, the U.S. epitomised this potent combination of individual freedom, industrial might and capitalism. Many aspects of modern life owe their genesis, or at least their mass popularisation, to the power of the American market. This may never have been achieved without that potent combination of democratic freedom and capitalist intent but most important of all, was the availability of cheap and abundant natural resources.

 

The primary driving force behind this western style economic juggernaut is the pursuit of personal and collective wealth. The desire for personal wealth is not an intrinsically evil thing: it is the economic mechanisms we have built to generate wealth that have become a problem.

This may seem illogical, unless we understand what modern day wealth really is. People, by nature, are makers: we imagine, conceive and construct the world around us. This is our genius, our raison d’être as a species but somehow, during our socioeconomic evolution, the process we call wealth creation – the accumulation of value measured in currency – that is financial wealth, has corrupted this singular human trait.

Before denouncing this comment as the rantings of a left-wing "loony”, consider what money really is: currency evolved to enable the fair and equitable trade of goods and services. It was a means to establish a common benchmark by which we could measure the worth of a particular service or product for the purpose of trade. To ground its value, it was tied to a fixed, finite commodity, such as gold. Currency today, normally takes the form of coins, banknotes and, more critically, credit — but it is no longer tied to a concrete resource. It has become an abstract measure of perceived financial power.

At some point in our economic development, money stopped being simply a tool to facilitate trade in goods and services, becoming instead a product in itself, something we, individually and collectively, try to accumulate. And therein lies the conundrum. An individual can only accumulate so many material things. There are physical and practical limits to what we can materially accumulate or consume. On the other hand, the accumulation of notes and coins or their digital equivalent – as stored in banks, public shares or other financial tools – knows no such logical limitation.

This should not be mistaken for the pursuit of profit from trade, which is fundamental to any business transaction. It is the pursuit of profit for the sake of profit alone. We no longer focus our efforts on making something to fill a need or function; our primary purpose is to proffer something in order to generate profit from the consumption of that product or service.

When financial gain becomes the primary focus of an entity’s business activity, the quality, necessity and moral rectitude of a product or service becomes secondary to financial reward. This is not to say that money is the cause of all greed. Humanity has plenty of that – and we always have – but money in its current abstract form facilitates avarice to a level previously unseen.

This problem has multiple dimensions, perhaps the most troubling of which is that most people do not even perceive the problem. The core issue, however, is the availability of resources that power the engines of economic growth. These resources are limited and that should regulate economic activity. Regardless of how convoluted the “value add” chain, financial wealth is, at its root, a derivative of material wealth, a product of the conversion of material resource to financial value.

Yet, contrary to our finite material world, our financial world focusses on deregulation, removing barriers to growth, facilitating wealth creation and the unbounded growth of financial power. Our failure to regulate or finitely link our financial markets with the real world is humanity’s single greatest threat. Climate change, regional conflict, environmental degradation and mass extinctions of the world’s fauna are but symptoms of this pathological addiction to wealth creation.

There are renewable resources – timber, fresh water, seafood, agricultural produce – but these are ruthlessly exploited and poorly managed. The overuse of arable land has contributed to increasing desertification, native forests are being felled faster than they can regenerate and our oceans are being systematically plundered of marine life. The fact that technology is keeping pace with much of this decline through improving efficiencies in agriculture, resource extraction and energy generation, has obscured the reality that there is a limit to how much we can consume before we reach a point where our resources can no longer sustain us.

Many people see the problems and commit themselves to battling the worst excesses of our modern world. But they are divided — each person, group or institution dedicated to a cause is myopically focussed on one or more of the symptomatic expressions of a greater underlying malady. They are not addressing the primary disease: our addiction to “wealth creation”.

This is an extraordinarily difficult thing for most people to grasp. Wealth creation is mistakenly perceived to be the optimal result of capitalist endeavour. Capitalism is a core element of our democratic "DNA" and the material and technological wealth of all First World countries can be directly attributed to capitalism in some form or another.

Even economically successful non-democratic states owe their economic growth and potential to Western democratic markets. For example, China’s market has grown rapidly to become the second largest economy in the world. This could only have been achieved due to the existence of democratic, free and open markets. China’s state-run capitalism can only exist as a result of open markets in democratic states. But that does not mean that the unbridled pursuit of wealth creation is a healthy outcome of capitalism, or that it should be allowed to continue.

The growth of share market economics – particularly the boom in financial services – has become the primary vector of uncontrolled wealth creation. The evolution of currency from a means to facilitate trade to an end in itself, has created an extraordinarily pathological force in society. The growth of global financial markets through investor capitalism is eroding the very democratic institutions that made capitalism such a vital force in our socioeconomic development.

Disassociating wealth from its material base has created globe-spanning financial entities that thrive on the generation of financial power regardless of its source. Some of the more prominent examples of these entities being the military industrial complex, banks and investment firms, global pharmaceutical companies, organised crime syndicates and investor funded globe spanning conglomerates.

On the microeconomic level, the manic addiction to wealth creation corrupts institutions that should exist for the benefit of all. It has debased our legal system to the point where litigation is increasingly practiced for financial gain, not to protect and uphold the rule of law. It turns our medical practitioners into drug pushers who are financially motivated to promote products from competing pharmaceutical companies. It commoditises education, turning fields of learning into products that have to be sold regardless of socioeconomic need or applicability. Ultimately, it strikes at the heart of our ability to self-govern – powerful vested interests have become a pernicious and debilitating influence on the political institutions created to guide and protect society.

Just knowing there is a problem is not enough, understanding the cause of the problem is a good start, but what we really need to do is re-evaluate our whole economic model of development and implement change before it is too late.

This is an extract from Facing the Apocalypse: Humanity’s Role in the New Millennium, by Stuart A. Andrews.

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License

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