Jo Swinson is Director of Partners for a New Economy and former Minister in the UK Liberal Democrat Government
Former British Prime Minister Liz Truss was right about one thing: economic orthodoxy is a real problem.
Unfortunately, their recipe for promoting tax cuts for the rich and promoting casino banking was disastrously wrong. Yet neither current Prime Minister Rishi Sunak nor Labor leader Keir Starmer will solve the UK’s woes if they conclude that we need a return to austerity or that there is no room for courage – particularly in the face of rapid energy transition , which we need.
And politics will continue to fail in its core task of improving people’s lives until the economy is up to the challenges of the 21st century.
The roots of Britain’s current political chaos stretch back at least two decades to what appears to be a booming economy that has left many places and people behind. Dissatisfaction was masked for a time by then-Prime Minister Tony Blair’s government increasing public spending – but the financial crash hit them hard.
Markets called for austerity, and in 2010 my Liberal Democrat colleagues and I espoused the economic orthodoxy that deficit reduction came first. However, given the conservatives’ reluctance to raise taxes on the wealthy, our public services and those on low incomes were left on their shoulders, bearing far too much of the burden.
But actions have consequences. And cuts in the name of “efficiency savings” have made our society far less resilient.
When the coronavirus pandemic hit, stocks of personal protective equipment were depleted, leaving our frontline healthcare workers shamefully vulnerable. Strict wage restraint – though significantly not at the top – made life more difficult and made society more vulnerable to the divisive tactics of the far right and migrant-scapegoating rhetoric.
This is not, of course, an exclusively British phenomenon. Brazil, France, Germany, India, Italy, Sweden, the United States and many more have all experienced significant polarization and populism, with the far right gaining ground. Even when a more consensual politician comes out on top, small margins are only a precarious step from the brink.
The problem is well diagnosed, whether it be in former Prime Minister Theresa May’s speech on tackling burning injustices, in former Prime Minister Boris Johnson’s “leveling” rhetoric, or in former Labor leader Ed Miliband’s call for “pre-allocation”. However, rather than turning to history for solutions – whether through the socialism of former Labor leader Jeremy Corbyn or the Truss look back at Thatcherism – we should be firmly focused on the future.
It’s time to move beyond GDP as an indicator of progress and end our obsession with a measure that has flaws that were apparent long before 1968. US Presidential candidate Robert F. Kennedy made the memorable critique: “It concisely measures everything except what makes life worthwhile.”
The arguments are well rehearsed – and many: GDP ignores much of what matters most; disasters increase GDP; it tells us nothing about who gets what. For living beings, growth is helpful and desirable only until maturity. And as a society, we need to support the growth of other things — our health and well-being, the abundance of nature in our parks and green spaces, the thriving skills and self-esteem of our young people, and our collective curiosity, creativity, caring and collaboration. We are social animals by nature, and collaboration is humanity’s ultimate strength.
The pandemic has taught us what really matters – whether we want to learn the lessons from it. The race to develop vaccines has been achieved in record time through unprecedented collaboration between governments, scientists and business. The virus was slowed down by the remarkable public solidarity. And we all saw the value of things that money can’t measure. We eased lockdown restrictions to allow for fiscal bubbles – not for the sake of our economy, but because we realized there was no price for a hug.
Yet as the rainbows fade from our windows, the essential workers we’ve been clapping for are clearly underpaid and undervalued, and the younger generation, who have given up so much for their elders, feel a bleak future lies ahead. These problems were evident even before COVID-19, but now they are inevitable. The current trajectory of the economy has broken the social contract, which is in dire need of repair.
And while we’re at it, we also need to rethink stability. Economists assume that we are always focused on balance, but as we exit the Holocene of Earth’s history and enter the Anthropocene, we face a far more uncertain future with more shocks such as floods, fires, droughts, storms and pandemics will come frequently. Yet economics is willfully – and disastrously – ignorant of the vital role of the environment in our economy.
Current economic models are far too simplistic – they do not take into account the full impacts of climate change, and little attention is paid to the multiple environmental warning signs related to species extinction, nitrogen and phosphorus fluxes, land-use change and chemical pollution. Environmental literacy must be essential to economics, as economist Professor Progar Dasgupta powerfully demonstrated in his 2021 report for the UK Treasury.
Rather than just assessing the risk of environmental disasters for financial assets, we should focus on the more material risks that the financial system poses to our home planet.
Even economists should show some humility. Whether it’s the invention of “warm banks” while energy companies are making record profits, 30 million people have been displaced by floods in Pakistan, or last summer’s extreme heat gave London Fire Brigade its busiest day since World War II don’t need a degree, people see the disconnect between current economic theory and their own lived experience.
Fortunately, there are many avenues to a future in which our economic system can play a positive role in regenerating our planet and feeding its people.
For example, the work of Nobel Laureate Elinor Ostrom and the field of ecological economics have much to offer in how to manage finite natural resources. And as demographic change poses challenges to labor markets, feminist economics also offers a new perspective on valuing care work—both paid and unpaid—as the basis of all other economic activity.
While it is notoriously difficult in both business and politics to keep an eye on the longer time horizon – given the constant short-term pressures of quarterly reporting and frequent elections – this is where corporate governance rules could be changed to better serve employees and giving nature a place The table. And the pioneering work of the Future Generations Commissioner in Wales can be an inspiration for today’s political responsibility towards our children and grandchildren.
Escaping the demand for endless economic growth and the use of natural resources is certainly a tricky conundrum too, but here too there is cause for optimism. Professors Jason Hickel, Julia Steinberger and Giorgos Kallis have recently won major European Research Council funding to research economic degrowth pathways, and next week’s Beyond Growth conference in the European Parliament puts the issue firmly on the agenda at the highest level of the EU.
Finally, to restate the fundamental question of what economic policy is for, Professor Kate Raworth’s idea of the “donut economy” is both simple and compelling: design an economy that operates within the two rings of a donut – the social base, to which everyone has access to livelihoods and the ecological ceiling of the planetary boundaries.
Of course, nobody claims that putting all this into practice is easy. Challenging orthodoxy runs the risk of being ridiculed, and supporting the status quo seems a safer bet – even if that path involves social and environmental tipping points. Not all change ideas will work, and others may make sense but are unpopular. The interest groups are now powerful and ready to defend their position.
However, these ideas are exciting and the course needs to be charted. It is the actions of each and every one of us – whether as academics, business leaders, activists, journalists, thinkers or citizens – that either lead us further into the current impasse or help to find a better path to a fit economy for the future.
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