“An investment is by all right-minded people to be commended, because it brings comforts and necessities to the citizenry. But, if continued indefinitely, it will lead to the endless pursuit of unnecessary things.”
– Adam Smith
I HAPPENED TO SIT NEXT to Ken Behring at lunch. He was picking in a desultory way at his food – a little shrimp salad, as I recall, a feeble thing for such a big man – and looked distracted. He was still mulling over what he’d said in his speech earlier. He’d tried to tell people why he did what he did, why he had founded a charitable foundation called the Wheelchair Foundation of America, and what it all meant, but he wasn’t at all sure he had made his main points, and that made him glum.
I didn’t know very much about him. He had been the owner, once, of the Seattle Seahawks football team, came from somewhere in the Midwest, and had made oceans of money, first in auto dealerships, then in development, then in a growing series of more or less associated businesses. None of it had satisfied him, and so he had come here, to a meeting of the curious and interesting Wealth and Giving Forum, whose function is to help the very rich give their money away. The purpose of his foundation, Behring had said in his speech, is to give mobility and hope to disabled people around the world – he wanted to give away a million wheelchairs in the next five years.
Because he did look glum, I asked him again why he did what he did. He piled the remaining shrimp on a small piece of lettuce, and pushed it away. “At last count,” he said, “how many houses did I have? Five of them, each one with a Rolls-Royce, each one full of the things I spent a life accumulating. I have my own plane …” He trailed off. I had seen the plane. This wasn’t your little corporate jet, but a Boeing 737, a serious jet for serious people. “But you know what? I spent a good part of my life climbing the mountain, and when I got to the top, I found nothing there …” He trailed off again. “Nothing,” he said quietly. A few years earlier, as he had explained in his speech, the Red Cross, hearing that his plane was on its way to India, asked if they could hitch a ride for a few wheelchairs. Why not? There was room in the hold for hundreds of them. When they got to India, Ken got off the plane with the chairs, and followed them into the villages that were their destination. Sometime in the first few hours, he took a small legless girl, lifted her into a chair, and watched her face as it first crumpled and then … “It absolutely lit up! She took hold of the wheels with her hands and started to move, and she was so full of joy, such a small thing but such a huge change in her life, from complete dependency to mobility.” The joy turned something in his heart. It was joy that was missing from the top of the mountain.
“I had finally learned,” he said a little while later, “what money was for.”
Just so. In the age of environmentalism, with climate collapse a real possibility, and in the aftermath of the greatest economic meltdown in 90 years, we need to ask the same question: What is money for? What is the economy for?
Once you ask that question, there is really only one answer: the economy’s purpose is to maximize human welfare and happiness. It is not to create wealth. Wealth is only a path, not a goal.
A cascade of other questions follows. Why it is acceptable to strip the planet of its natural capital, in a binge of rapacity? Why is pollution acceptable, as long as profit follows? Why is it acceptable in a globalized world for a corporation to fire 10,000 workers in order to move to a low-wage jurisdiction and so benefit the stockholders? Why is it acceptable for corporations to take out insurance policies on sick workers, and so profit from their deaths? How can the formulation “jobless recovery” be greeted with anything other than ridicule and contempt? Why can we not see that the phenomenal success of global capitalism now demands to be rethought – not in the framework of any other ism, let alone socialism or communism, but because the model that now drives the world economy has taken society beyond the carrying capacity of the planet?
How do we restore balance? To start, we need a new series of metrics to measure economic activity, beyond the crude measurements of GDP. We need some device for incorporating the effects of our diminution of natural capital (such as water and air, the stripping of natural resources, the real costs of pollution) into our economic calculations. In short, we need to examine the economy in an age of environmentalism. Then we need to revisit consumerism and its adjuncts, marketing and advertising, and to devise a new economic operating system, a Capitalism 2.0, a new sustainable economy.
If the economy’s purpose is human welfare and happiness, it is fair to ask the question, Are we happy yet?
It is obvious that our economic system is in trouble, and that disillusionment with its excesses is now deeply rooted.
In 2009, as millions of dollars were once again being paid in “retention bonuses” to the very corporate executives whose management skills had nudged the world economy over the cliff (and as the bankers were eager to extricate themselves from government loans, not out of shame but because they could then revert to paying themselves the large sums they considered their due), a “patriotic solution” was circulating among Americans on the Internet. It went something like this:
There are about 40 million people over 50 in the work force. Pay each of them $1 million severance pay that includes three stipulations:
Buried in the joke was a serious point. It expressed an undercurrent of bitter anger against a system that had carelessly turned so many of the middle class into an underclass, and that had driven so many of the working poor to penury. Joe Bageant, whose book Deer Hunting with Jesus eloquently puts the case for the underclass, wrote on his blog: “Yes, you poor dumb sonnuvabitch, Jesus loves you. But the elites need you. They need you to pay for their lawn parties, trips to Europe and to ensure the financial perpetuity of their pampered spawn for generations to come.” In Deer Hunting, Bageant writes: “The reality is that our economy now consists of driving 250 million vehicles around the suburbs and malls and eating fried chicken. We don’t manufacture much. We just burn up ever scarcer petroleum in the ever expanding suburbs built with mortgage money lent to people who don’t have a clue … The industry allows them to borrow on the absolute edge of their ability to pay. What we never see when we drive by these developments are the people inside surviving on tuna sandwiches and living on the cusp of affordability.”1
The anger was there because the people most affected by the economic meltdown were neither consulted nor considered.
It has become clear that the obscene profits conjured by the denizens of Wall Street and their ilk had nothing to do with the real economy. Their innovations had actually triggered the collapse – the credit default swaps and collateralized debt obligations and the rest – and were invented to alchemize profits from a dying industrial system that was no longer pumping profits into the economic bloodstream. (“Making and marketing products is sooo last century,” Laura Penny comments in her entertaining rant, More Money Than Brains.) Wall Street had become a Ponzi scheme, and if there were any real justice many of the “bankers” should have been jailed.
If among the underclass the predominant emotion is a roiling anger, at other levels the prevailing mood is more muted – worry, mistrust, a profound suspicion of political motive, and a sense that common-sense controls are no longer really possible. It’s not gone unnoticed that the traditional indicators for business “success” often mean the opposite of what creative capitalism ought to mean. Anyone who reads the financial pages can see a company’s stock price rising on news of successful downsizing, outsourcing, or merger – operations that result in even more obscene corporate salaries while thousands of people are forced out of work.2
The reaction on the right was to blame the government (the Tea Party and all that). The reaction on the left was to blame business.
In fact, the whole system has been corrupted.
Capitalism, as we now know only too well, abhors competition, which usually has to be imposed by government fiat, in the guise of antitrust or antimonopoly legislation. Business tolerates competition only if it must, much preferring the neatness of monopoly. Much better to buy out or destroy competitors in order to control markets and maximize profits. Business also loves subsidies, and will do almost anything to get them – threaten to move jobs elsewhere, or fabricate political contributions from “grassroots” campaigns, thereby getting public subsidies for everything up to and including advertising products in foreign markets.
The increasing disparities in wealth in developed countries are airily dismissed in so-called marginal productivity theory, which points out that everyone gets a part of the flow of wealth, whether through wages, interest, rent, or profit, and each part is rewarded by the productivity it generates. Forgotten is the basic fact that not everyone owns a piece of the stock. Political economist John Stuart Mill identified the problem as far back as 1881: “Private property, in every defence made of it, is supposed to mean the guarantee to individuals of the fruits of their own labour and abstinence. The guarantee to them of the fruits of the labour and abstinence of others, transmitted to them without any merit or exertion of their own, is not of the essence of the institution, but a mere incidental consequence, which, when it reaches a certain height, does not promote, but conflicts with, the ends which render private property legitimate.”3
Adam Smith is one of the saints of free-market capitalism, and his notion of the “invisible hand” is much quoted in the canonical texts (though there is only one reference to it in the 900-plus page economic treatise he called The Wealth of Nations: “[The business owner] intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”) Forgotten or ignored are Smith’s other strictures: buyers and sellers must be too small to influence overall market prices; complete information must be available to all; sellers must bear the full cost of the products; investment capital must remain within national borders and trade must be balanced; savings must be invested in the creation of productive capital. Nor would Smith have accepted hedonism as a measure of human well-being, or that behavior should be motivated solely by material self-interest.
Even if markets were self-regulating through competition or other devices, that wouldn’t make them positive, or benign. Even at its best, self-regulation has a built-in delay while the market adjusts. In the meantime, millions are in misery because the market has gone awry, jobs have vanished, savings have melted down, communities have been destroyed, their factories yanked from their midst to migrate to lower-wage communities. Perhaps in the long run, the proper adjustments would be made by market mechanisms. But as John Maynard Keynes famously observed, “In the long run we are all dead.”
Economists have many metrics of measurement, but really only two that count. If you listen to the rhetoric from our financial governors, or from analysts whose job it is to measure performance, or from the commentariat, only two numbers stand out: the growth rate of the national economy and the rise (or fall) of gross domestic product, or GDP. They have come to stand as a shorthand measure of national success or failure.
At a recent round table with bankers, I was told that “Canada will grow between 1 and 1.5 percent next year.” Translation: out of recession, but weak. Australia, the same day, was the first developed economy to actually raise interest rates. Why? Its economy was predicted to grow 2 to 2.5 percent in 2010, mostly because of the enviable proximity to China. Growth is a measure of success. Growth is vital. If you don’t grow, you’re a chump. GDP is used by the U.S. government (both executive and legislative branches) to prepare the budget, and in Canada to allocate, among other things, revenues under the provincial equalization plan. The British and French treasuries use it to formulate monetary policy. Investors use it as a measure of economic robustness. The International Monetary Fund and the World Bank use varying levels of GDP to direct investments and fund projects.
In a sense these two – overall growth rate and GDP – are the same thing, measured different ways. When it was invented, after the Great Depression and Second World War, GDP was a reassuring device intended to show the economy was recovering: how fast it was growing, the pattern of spending on goods and services, what percentage of the increase was due to inflation, and the proportion of growth being used for consumption or savings. All these measures are valid. But even its architects cautioned against using GDP to measure anything but economic activity – it was never meant to be a measure of economic or social well-being. Russian-born American economist Simon Kuznets, who invented the GNP (Gross National Product), an index similar in most respects to GDP, though with many technical differences, himself cautioned against its misuse. In his first report to Congress, in 1934, he said that “the welfare of a nation [can] scarcely be inferred from a measure of national income.”
More recently, however, GDP has come to be regarded as a measurement of improvement, not just of growth, and it is widely used to compare the quality of life in various countries. But there are too many things it doesn’t measure, and too many it does measure that are harmful rather than beneficial.
GDP ignores completely the reality of natural capital. The act of depleting such capital – drilling for oil and then extracting it, for example – is certainly economic activity, but if the depletion were written into the calculation, GDP would be shown going down, instead of up. GDP is also oblivious to disparities of wealth, to the extinction of cultures and local economies, to disappearing forests and farmland. The more fish we catch, the more trees we cut down, the more toxic oil sands we extract, the faster GDP grows. If we build more prisons to house more criminals, GDP goes up. Cancers add to GDP because they consume drugs, hospital resources, and doctors’ time. The more emphysema caused by air pollution goes up, the greater the GDP. Wars are good for GDP too.
Nor does GDP, or any other currently used economic measure, put any value to what have become known as “ecosystem services” – the way the natural world cleans up waste and pollution, prevents erosion, pollinates crops, and contributes the energy to plants and animals to keep us alive. One estimate is that if these services were done by humans they would likely cost more than $30 trillion a year.4
This is not exactly a new discovery. When Bobby Kennedy was running for president more than four decades ago, he gave a speech on March 18, 1968 to the University of Kansas, saying this about GNP
[It] … counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities … and the television programs which glorify violence in order to sell toys to our children. Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”
GDP, as Herman Daly has said, measures the efficiency with which we destroy what is valuable.
If constant growth and increasing affluence really made people happy, and really did increase human welfare, then changing the system would not only be difficult to do, but difficult even to justify. But there is increasing evidence that they don’t, and that therefore a policy that seeks to maximize the greatest possible happiness can provide an obvious governing principle by which all economic actions can be judged.
So how do we know that people in affluent countries are not happy? Mostly because they have told us so, over and over, in poll after poll. Most people want more income, it is true, but as they get it, it just doesn’t do what they thought it would. In fact, as societies become richer, they do not become happier. This is not just anecdotally true, it is the story told by countless pieces of scientific research. Richard Layard, for example, has shown that while real GDP per capita has more than doubled in the U.S. since the Second World War ended, the percentage of Americans who describe themselves as happy has changed hardly at all, and may have declined. The rich world actually has more depression, more alcoholism, and more crime than it did than 50 years ago – not just in the U.S., but Canada, Britain, Europe, and Japan. Layard is director of the London School of Economics Centre for Economic Performance, and has devoted much of his recent career to the science, as he insists it is, of happiness – his 2005 book was called Happiness: Lessons from a New Science. He was appointed to the British House of Lords by Tony Blair for his services to the Labour government, and he argued vigorously in Labour councils that “happiness should become the goal of policy, and the progress of national happiness should be measured and analyzed as closely as the growth of GNP.”
A survey taken before the 2008 financial crisis found that 83 percent of Americans thought their country’s priorities were wrong, 81 percent said there was too much focus on shopping and spending, and 88 percent said America was too materialistic.5 The same research found a strong correlation between self-reports of happiness and an index of psychological measurements of feelings of purpose in life, autonomy, positive relationships, and self-acceptance. Clive Hamilton, in his book Growth Fetish, asserts that “despite high and sustained levels of economic growth in the West over a period of 50 years – growth that has seen average real incomes increase several times over – the mass of people are no more satisfied with their lives now than they were then. If growth is intended to give us better lives, it has failed.”6
An American survey shows that a paltry 22 percent of employees trust their employer; most understand that while they are required to give extraordinary commitment to the company, the same company reserves the right to cut its workforce with no notice and little compunction, offering little or nothing in return.
Tim Kasser is an American psychologist, and his researches (in a 2002 book called The High Price of Materialism) found that those who focus on material consumption suffer higher rates of mental and physical ailments than those who don’t (he called the stuff that consumers crave “psychological junk food”). Poor people do get happier when they acquire more stuff, but beyond a certain level – quite a low level, the research indicates, perhaps $15,000 or $20,000 a year – more money and things cease to have any positive effect.7 The same general principle runs true for countries.
“The economy … cannot produce social justice … or emotional stability, or love,” as André Reichel, of the University of Stuttgart, stated at a conference in July 2010. “If the economy tries to … produce something like love, you call it prostitution. If the economy tries to produce social stability, you call it corruption. The economy can only produce goods and services.” So we need to measure economic progress by other means, because unless we measure accurately, we can’t adjust our behaviour.
In 1972, the kingdom of Bhutan announced that it would henceforth measure its economic progress by what it called Gross National Happiness, or GNH, an announcement generally greeted with benign dismissal as hippy-dippy emotionalism unfit for a serious country. At the time, choosing quality of life over rising GDP seemed quixotic – aren’t they the same thing? Well, no, it turns out. Bhutan’s prime minister, Lyonpo Jigmi Y Thinley, says GNH is “based on the premise that true development of human society takes place when material and spiritual development occur side by side to complement and reinforce each other.” GNH’s four pillars, he said, were equity, preservation of cultural values, conservation of the natural environment, and establishment of good governance.
Hard to argue with that. In fact, a number of other jurisdictions have followed suit, and in 2009, as part of the fallout from financial meltdown, France’s president, Nicolas Sarkozy, put together a blue-ribbon panel of economists, Nobel laureates among them, to devise a similar measure for his country – not as a substitute for GDP, but as a complement to it. The government of U.K. Prime Minister David Cameron decided late in 2010 that it would take a similar action. Australia has done the same thing, assembling a well-being index whose task is to assess the level of opportunity and freedom people enjoy, the level of consumption possibilities, the level of risk and complexity people are required to deal with. Predictably, France’s corporate leaders “welcomed” the Sarkozy commission’s first report, while demanding it not be too “restrictive” and do nothing to hamper their productivity, thereby proving they hadn’t really understood it. More surprisingly, Venezuela’s Hugo Chavez immediately announced he would adopt the report in toto, which didn’t do its reputation much good.
The theoretical underpinnings for a revised accounting began to be devised in the 1980s, notably through the work of the New Zealand feminist and economist Marilyn Waring, who studied biases in national accounting systems. By the 1990s there was a broad body of work showing that the growth in the money supply could actually reflect a loss of national well-being – that diminished natural and social services were being supplemented by cash infusions, and that this was expanding the economy but degrading life. Out of this work, other theoretical models were proposed, some of which use conventional national accounting systems, but then add or subtract factors at need. These include the Index of Sustainable Economic Welfare, invented by Robert Costanza, which improves on the GDP by accounting for pollution costs and the depletion of natural resources, as does the Green GDP, and the Genuine Progress Indicator.
The GPI was developed by three California researchers in 1995, incorporating 26 economic, social and environmental variables; its intent was to measure real progress by assessing the economic value of environmental assets ignored by conventional statistics. More broadly, it measures whether economic activity is increasing general welfare. Even more simply, it measures costs as well as benefits of economic activity, those costs including resource depletion, crime, atmospheric pollution and ozone depletion, farmland loss, wetland loss and more. In a way, GDP versus GPI is like the difference between gross and net profit. It is entirely possible for a company to make a substantial paper profit (which GDP measures) that vanishes after expenses have been totaled. The GPI often ends up as a negative number. For example, the GDP reports would indicate that farming in North America is in robust shape – farm receipts (including subsidies) have grown steadily. But expenses have grown faster than income, farmers are losing money and going out of business. If you sell off your farm machinery because you’re broke, that actually adds to GDP. The basic assumption behind GPI was expressed by the Chilean developmental economist Manfred Max-Neef: “When macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs.”
GPI hasn’t been officially applied anywhere, but it has come closest in Canada. A quick Internet search for GPI yields a Wikipedia entry that starts: “The best known attempt to apply a GPI to legislative decisions is probably the GPI Atlantic Indicator pioneered by Ronald Colman for Nova Scotia, the Alberta GPI pioneered by economist Mark Anielski to measure the long-term economic, social and environmental sustainability of the province of Alberta, and the environmental and sustainable development indicators used by the Government of Canada to measure its own progress to achieving well-being goals: its Environmental and Sustainable Development Indicators Initiative is a substantial effort to justify state services in GPI terms.”
This comes as somewhat of a surprise to some of us actually living in Canada. Canadian budgets are still explicit in insisting on GDP rise and debt reduction as priorities, while GPI notions continue to be invisible. Nova Scotia was less of a surprise. The provincial government passed its nonpartisan Environmental Goals and Sustainable Prosperity Act a few years ago, as well as its Opportunities for Sustainable Prosperity development strategy, and Ronald Colman, a former UN researcher and speech-writer, has spent a dozen years as founder and executive director of GPI Atlantic, integrating his research with the realities of the provincial economy. In addition, a number of local companies, including underwear manufacturer Stanfield’s, owned by the family of a former provincial premier, and Composites Atlantic, a maker of high-tech components for aircraft and the space industry, reacted to the 2008 financial crisis by reducing working hours and reducing take-home pay for everyone, including management, rather than laying off workers, all done by amiable negotiation with the workforce.
GPI, the Index of Sustainable Economic Welfare, and the others still have substantial limitations. There is no real consensus in how to measure activities like unpaid labor, volunteer work, or the work done by illegal migrants. There is no unanimity on which items go into the positive column and which into the negative. It’s also difficult trying to put a real number to the cost of depleting natural resources. And of course, just measuring the economy properly doesn’t automatically change it. It’s not even altogether clear that we know how to change it, or that the changes, were we to introduce them, would be controllable. As biologist Stuart Kauffman puts it, “Like the biosphere, the econo-sphere is a self-consistently co-constructing whole, persistently evolving, with small and large extinctions of small and large ways of making a living, and the persistent small and large avalanches of the emergence of new ways of making a living … the economy evolves in ways that are often not foreseeable.”8 Even so, such indexes make prices tell the ecological truth.9
A few weeks after 9/11, a still rattled George Bush was widely quoted as telling the American people that one of the best things they could do to counter terrorism was to “continue shopping.” It was a careless paraphrase of what he really said, which was to urge Americans to get on with their lives, including “get[ting] down to Disney World,” but even if he had urged everyone to continue cruising the malls, how would his advice have been different from what The Economist had been reporting for more than two years – that it was the unshakeable confidence of the American consumer that had kept the nation, and to a lesser degree the world, from a serious recession? In fact, right up until the late summer of 2008, when the meltdown started its public phase, all the business pages were still marveling at the staying power of the American consumer. This interesting creature was still propping up the world economy by its consistent, apparently endless, insatiable spending.
Indeed, buying stuff kept the economy going.
This isn’t necessarily new. John Stuart Mill once remarked that “[in] the northern and middle states of America the life of the whole of one sex is devoted to dollar hunting, and of the other to breeding dollar hunters”; and an American hero, General Nathanael Greene, writing from Valley Forge at the height of the Revolutionary War, declared sorrowfully that “money becomes more and more the American object. You must get rich, or you will be of no consequence.”10 Much later, a White House document issued in 1931 saw an escape from the Depression through spending, suggesting that parents take their children with them to the shops to pick out their own things, “creating a sense of personal as well as family pride in ownership, and eventually teaching him that his personality can be expressed through things.”
None of this was wrong, exactly. After all, see what happened when that vaunted consumer confidence disappeared, victim of a housing bubble and a market whose irrational exuberance escalated into something closer to lunacy. People stopped buying cars, and the auto industry flirted with collapse; they stopped buying durable goods, and manufacturers laid off a substantial part of their workforce; they stopped eating out and restaurants closed. Unemployment climbed, profits collapsed, the economy entered recession. Recessions, in the end, are an inevitable consequence of no-growth in an economic system that depends on growth for its survival.
To that kind of economy, thrift is the enemy. Through much of the twentieth century, everyone was in favor of thrift and saving money for a rainy day, at least in theory – but in practice thrift was, and is, widely abhorred. John Maynard Keynes stated the dilemma baldly. “Whenever you save five shillings, you put a man out of work for the day,” he wrote, though he was speaking mostly about spending by the British government. The Financial Times put the same thing another way: “The stamina of shoppers,” it observed in a 2006 editorial, “will be crucial for global growth.” Spend and you create jobs; stop spending, you cause unemployment and misery. Besides, spending is nice, and you have advertising to tell you so. In the U.S., after all, advertising accounts and for 2.3 percent of gross domestic product, more than half the money spent on education. Karl Marx, who admired advertising recognized its critical role, though he suspected that no one needed brainwashing to be greedy: “[The capitalist] therefore searches for all possible ways of stimulating them to consume, by making his commodities more attractive and by filling their ears with babble about new needs.”11
Even in earlier days thrift was widely regarded as a virtue, but only in moderation, and mostly when done by the working classes, for their own good, so they didn’t waste their money on gin. But even that idea died in the self-gratification era of the baby boomers, when thrift became a folly and saving for suckers, as Nancy Gibbs wrote in a Time magazine essay in October 2008, in the middle of the meltdown: “You died leaving money on the table, and there were no pockets in shrouds.” In most countries, the tax system is biased against savers: interest earnings are usually taxed at a high rate, whereas mortgage interest is often tax deductible. Tim Jackson, sustainable development adviser to the U.K. government of Gordon Brown, was scathing about politicians’ craven refusal even to contemplate savings, in an article in New Scientist: “Instead, they bombard us with adverts cajoling us to insulate our homes, turn down out thermostats, drive a little less, walk a little more. The one piece of advice you will not see is ‘buy less stuff.’ Buying an energy-efficient TV is applauded; not buying one at all is a crime against society. Agreeing reluctantly to advertising standards is the sign of a mature society; banning advertising altogether (even to children) is condemned as culture jamming.”12 Green consumerism isn’t a solution. That merely shifts the spending to less obnoxious alternatives.
Two other aspects of consumerism are worth considering. The first is “positional” or aspirational spending; the other is the idea of the bargain. Positional spending is the acquisition of status goods – a version of “keeping up with the Joneses.” Positional goods are those that can easily be compared to the possessions of others, and they are “chosen” by a variety of hard-to-track forces, such as advertising and its associated psychological tricks, broader cultural norms, peer pressure, and fashion. If Jones has a new Prius, you can’t drive a Caravan, can you? You must get a new Prius too, or find another car that is equally efficient and equally fashionable. If the Joneses have a 1,500-square-meter house, and yours is only 1,200, you can’t be doing as well as they are. But in the 1980s and 1990s, keeping up with the Joneses changed into outdoing the Joneses. Yours must be bigger, better, more expensive, newer. If you think you’re immune, Konrad Yakabusky wrote in a Globe and Mail essay, “Ask yourself that the next time … that you splurge on a new-generation wafer-thin organic light-emitting-diode television, whose million to one contrast is wholly undetectable to the human eye. Ask yourself that the next time you salivate over that Miele W2839 washing machine. It is not because it will make your clothes any cleaner.”13 All in all, positional spending is what the Australian scientist Clive Spash calls “people buying things they don’t need, with money they don’t have, to impress people they don’t like.”
Economist Richard Easterlin has called this effect “hedonic adaptation” – people rapidly adapt to material improvements in their lives, prompting them to want still more, particularly if others around them are buying more or less the same stuff. The downside of this notion is obvious. There will be winners in this race, but most of us will be losers. Everyone can’t be richer than everyone else. Richard Layard makes the same point, when he identifies three factors that contribute to relative unhappiness: social comparisons; adaptation (the idea of a sufficient income grows just as fast as income does); and changing tastes, which means that your own possessions just go out of fashion, leaving you wealthy in stuff no one else any longer wants.14
This helps explain why economic growth doesn’t raise general welfare or well-being, reinforcing the alarming discovery that the number of “person-years” lost to the global population through the consequences of affluence (heart attacks, obesity, diabetes) is now almost the equivalent of the number lost through the effects of poverty (infant mortality, child and maternal malnutrition).
The second aspect worth reconsidering is the search for bargains, which has become a cultural obsession (my father-in-law, bless him, used to drive a good way across town so he could buy day-old bread that was a nickel a loaf cheaper). Thrift hasn’t disappeared, after all; it has just mutated into the endless search for cheaper stuff. This search has had many savagely negative effects: it has persuaded manufacturers to set price, rather than quality or service, as the single prime necessity. It no longer matters that something lasts, or does what it was supposed to for longer than it takes to unwrap it, as long as it is cheaper than the competition. Things can no longer be fixed, only thrown away, and the next cheap thing bought in their stead. Bargain hunting has driven down wages and led to the globalized search for an ever cheaper work force. It has led to a world in which advertising tells greater and greater lies, in which predatory discounters routinely drive smaller businesses into bankruptcy, devastating small towns everywhere. It rewards scale. It has led to Walmart, the world’s largest retailer, and arch pusher of vast amounts of Adam Smith’s unnecessary things.
Much has been made recently of Walmart’s plans to reduce its environmental impact, and to enforce environmental and social standards on the millions of suppliers that fill its stores. Walmart has switched to environmentally benign light bulbs. Its trucks are no longer kept idling while their drivers take a lunch break. But meanwhile, Walmart still keeps its prices as low as possible. It works this way: a factory in a small town, say Winchester, Virginia, makes, say, rubber goods. Call it, oh, Rubbermaid for short. It is a good-sized firm, and it has always operated in a socially responsibly way – it has a stable workforce, pays livable wages, makes products that endure, and sells a good many of them to Walmart. By 1994, the company was doing so well that it was voted the most-admired American company by Fortune magazine. But a few years later,
North America’s largest plastic products company was a foundering corporation, brought down by the boys from Benton, Arkansas … In 2001, Walmart’s executive management team heavied up on Rubbermaid, demanding ridiculously low prices despite an 80 percent increase in the cost of raw materials, and personal pleas from Rubbermaid CEO Joseph Galli. Galli begged. Walmart stood firm. Later, when Rubbermaid refused to go along with Walmart’s utterly unworkable price, Walmart dropped the hammer. It pulled Rubbermaid products off the shelves, replacing them with knockoffs … After seeing its sales drop 30 percent, Rubbermaid caved.15
Rubbermaid shut down 69 of its 400 facilities, fired 11,000 workers and planned to shift half its production to what it delicately called “low-cost countries.” Five years later, Rubbermaid’s profit was up – net income of $108 million. But the workers were still out of work, and the town was still devastated.
“The fact that stock rises – and its owners along with it – in the wake of mass firings says more about what corporations consider an asset than a million mealy-mouthed Human Resources brochures and Walmart smocks,” as Laura Penny so trenchantly put it in Your Call Is Important to Us.16 What is gained? It is easier to see what is lost. Workmanship and product integrity are lost. Paying jobs are lost, and workers who feel good about themselves and where they work. A good corporate citizen is lost, and with it a tax base for another small town. In a larger sense, a culture that understood standards, workmanship, and the value of craft is degraded, along with the sturdy but apparently obsolete capitalist notion that competition leads to stronger, more highly evolved industries through the process of “creative destruction.” Instead, we get price wars and the relentless erosion of standards. We get big box stores with no roots and no conscience. We get the commodification of jobs that has ravaged the middle class.
So ask again, who benefits? Here’s the answer: when Caterpillar moved its operations to right-to-work (i.e., antiunion) states with low wages, its employees could no longer afford to buy houses or send their kids to college, but the company’s profit jumped, in 2006, by more than 70 percent, and the CEO got more than $14 million in what is laughingly called “compensation.”17 You can call it compensation, if you like. I call it swindling.
This is the great conundrum. The economy is built on consumption and on early obsolescence, and all those “unnecessary things” consumers buy provide jobs and keep the economy ticking over. How do we manage a transition if people stop spending? Before, we could always rely on technological advances. People could stop buying buggies, and the buggy manufacturers went out of business, but people bought cars instead, and carmakers prospered. But what happens if we stop buying something – and buy nothing to replace it? If men stopped shaving, thousands of workers would be laid off, because their jobs are to make razors and razor blades and batteries for shavers, and shaving cream and lotions, and devising marketing campaigns for shaving systems. This dilemma is replicated in every industry, in every town, in every region, in every country. Andrew Revkin, the New York Times’s wise ecology correspondent, pondered the question in an article entitled “The Endless Pursuit of Unnecessary Things,” though he put it this way: How do you grow an economy without the jobs and the taxes that these unnecessary things produce? And he added: “The market, unfortunately, does not differentiate between good and bad. If the people want junk, the market will provide. So we have to fall back on the conscience of our business leaders.”18 In which he was surely being sardonic.
But in Revkin’s question lies the seeds of an answer. He asked, how do you grow an economy without the taxes and jobs? The beginning of the answer surely is, don’t grow. As Tim Jackson put it in the same broadside, quoted earlier: “Consuming less may be the single biggest thing you can do to save carbon emissions, and yet no one dares to mention it. Because if we did, it would threaten economic growth, the very thing that is causing the problem in the first place.”
Our economic system is corrupt, because we have quite lost sight of its purpose. Jobs exist, companies exist, economies exist, but we don’t seem to have any idea why. Apparently to get bigger. To keep growing. To make more profit. To make and buy more stuff. But again – for what purpose?
Measuring the economy isn’t changing the economy, but as the Stiglitz Commission, called into being by Nicolas Sarkozy, acknowleged in its 2009 report (Report Measurement of Economic Performance and Social Progress), “What we measure affects what we do.” So reformed, and therefore more accurate, measurement is a good start to actual economic reform: it clarifies the debate by exposing ambiguities, eliminating euphemisms, and adding data that conventional metrics leave out. We need data that will help us understand more fully that the purpose of economic activity isn’t jobs, or profit, or growth, or frenetic consumerism, but global human welfare.
The Genuine Progress Indicator and its counterparts offer platforms on which deeper reforms can be built, reforms that will integrate economic solutions with technological solutions to climate change, and the still-vexed issue of population. And make something better from the mix.