Big ship

Fixing our broken economy

Globally, the “neo-liberal” consensus is rapidly vanishing (I use quotation marks because there are some in Aotearoa who deny such a thing as neo-liberalism exists).

Regardless of the debate around its meaning, neo-liberal is a useful descriptor for the general trend in economic and social policy since the 1980s. This IMF paper characterised the policy approach as follows:

The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition. The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.­

The prevailing view from the 1980s onward (especially in the English-speaking world) has been that the role for the state should be limited in favour of privatisation in order to achieve economic growth. During this period, countries like the United States, the United Kingdom, and Aotearoa New Zealand have generally reduced regulation and taxation, especially for those with higher incomes or wealth, and at times reduced public spending on infrastructure and social services.

There are exceptions, but the political debate has generally assumed that government finances should be managed like a household’s finances – limiting spending and debt.

All of this is changing. There have been several papers form the likes of the IMF and the OECD calling out the high costs of policies that primarily benefit the rich.

Green Party finance spokesperson Julie Anne Genter

Green Party finance spokesperson Julie Anne Genter

New Zealand in particular was harmed by the wholesale economic reforms of the 1980s and 90s and the social and economic inequality that created. A recent IMF study concluded that the impact of the reforms of the early 1990s was not positive, and may explain structurally lower productivity.

The work of Thomas Piketty demonstrates that without progressive policy intervention, wealth becomes concentrated in a way that is both unfair and unhelpful. This new reality was even reflected in a recent article in the Business section of the NZ Herald, which suggested that mainstream thinking is shifting away from the ideas of the 1980s and towards a debate on how governments should get their countries’ economies moving in the right direction.

As the global economy struggles with persistently low inflation, low wage growth and asset bubbles, disgruntled voters in developed countries are expressing their discontent with the status quo, sometimes in very disturbing ways.

We need a new model, urgently, that reduces the huge gap that has opened up between a small number of exceedingly wealthy people and everyone else. But to do this, we need wider consciousness of the fact that the current economic system isn’t fair.

To me, the changing discourse around “the economy” is exciting. Here I use quotation marks because too often the economy is talked about like a complicated machine that only experts can understand, and to which we much sacrifice human wellbeing or our precious natural environment in order to have jobs.

The economy should describe how we allocate resources and how we spend our time. We have tended to overlook things that aren’t traded. There are many activities – like caregiving, fundamental to the health of human societies – that are not undertaken for commercial gain. Natural resources tend to be treated as an input to a machine that creates “wealth” in the short term. Yet the resources themselves are not created by humans, they are used up or transformed. The natural world is fundamental to the health of human societies (and other life on the planet), and if we do not look after it responsibly, we will be worse off in the long run.

No longer can we justify ecological degradation and growth in inequality on the basis of being good, or even necessary, for “the economy”, because both are bad for human societies in the long run. We can and must structure our economy in a way that protects the planet we live on, and empowers people to have healthy, happy lives.

The two looming, unavoidable challenges facing humanity are climate change and inequality. The previously dominant economic paradigm exacerbated both, and cannot help us solve either.

Big ship

The economy’s not working unless it’s working for everyone

What is the answer?

Thomas Piketty has a proposal for a progressive global wealth tax. Combine that with a global price on climate pollution. Allocate the revenue to countries on the basis of population, invest some of the revenue on socially beneficial infrastructure like energy-efficient housing, green transport, clean electricity, and make sure the rest is shared fairly. Protect the few remaining wild places, and manage natural resources responsibly for the long term. Encourage local, truly sustainable, food production.

Then see how people spend their time, and that will be an “economy” that can really serve human wellbeing for the long term.

This may seem too far from the current situation, and politically challenging to implement. But we can start the transition here in New Zealand with a range of Green Party policies that are sensible, and start to allocate resources in a fairer way:

It’s silly to say we can’t afford to do these things – the truth is we can’t afford not to.