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Ethical economics
608
ETHICAL
ECONOMICS
A new paradigm and stewardship
for global
justice
Robert D. Hamrin
Economics must return to its roots, which lie in ethics and moral philosophy. Key economic issues today are essentially moral onesunemployment, income inequality, environmental damage-thus rendering a new ethical economics paradigm an urgent requirement. In this article the specific elements of an ethical framework are considered, and the items on the humane, ethical economic policy agenda are outlined. In economics, the number one priority must be a return to its roots, which lie in ethics and moral philosophy. Only by doing so can we begin to recognize that most of today’s key economic problems-outrageously high unemployment levels in the context of ‘full employment’, increases in poverty, increasing inequality in distribution of income, the continuing destruction of biological capital (the ecosphere)-are fundamentally moral issues. Today, they are certainly not recognized as such nor are they even Why is it that these indices portraying basically poor being discussed. economic performance in the past few years go largely unnoticed and thus unchallenged? The answer is profoundly simple, involving a fatal sequence: (I) economists and policy makers are operating under the 300-year-old mechanistic economic paradigm of the industrial era which excludes all moral or ethical considerations; (2) hence we are not asking the right questions about our economy, nor are we making the proper requests of it; (3) thus, without a moral or ethical foundation, national political leaders and economists are attempting to erect their economic policy house on shifting sand. Given this, the world’s economic agenda should be: (I) construct a new ethical economics foundation, a new economic paradigm or economic ‘lens’ through which to view the global economy, that would tackle head-on the disengagement of modern economics and economic policy from ethical values; (2) develop the proper questions to ask, questions of assessment that probe deeper regarding the economy‘s current performance and
Robert D. Wamrin is an independent economic consultant. His principal clients are Robert Nathan Associates and Van Dyk Associates, in Washington, DC. He can be contacted at 1301 Pennsylvania Avenue NW, Suite 900, Washington DC, 20004, USA.
0016-3287/89/060608-11$0.300@l989
Butterworth
& Co (Publishers)
Ltd
FUTURES
December
1989
Ethical economics
609
questions of purpose regarding what the economy should be accomplishing; (3) develop the individual policy initiatives that would effectively address the questions and goals that emerge from an ethical economics. Before considering the specific elements of an ethical economics framework, I present the reasons why it is so urgently needed and some general observations as to why is should be well received.
Why an ethical economics
is needed
An ethical economics would basically provide a new economic lens through which individuals could more clearly see the world. We need a new lens to see clearly the economic injustice of telling millions of unemployed that the economy is at or near full employment and the hundreds of millions living in poverty that all is well in the global economy. We need a new framework to understand that the economic process is violating the environment and selling the future short with acid rain, toxic wastes, and groundwater contamination. Most fundamentally, we need a new paradigm that does not reduce each person to a wooden, purely rational ‘economic man’ but elevates people to their proper stature as complex physical/spiritual beings with individual needs, motivations, and life-purposes that are often irrationally human. An overtly ethical approach to economic matters in this increasingly technological age would allow all of us to ask better questions in assessing true economic progress and for the first time to raise questions of ‘How much economic growth?‘, but ‘Economic purpose-not merely, growth for what and for whom?‘. Only by asking such questions can the core values of an ethical economics-economic justice for people and stewardship of natural resources and the environment-become firmly rooted in policy. The underlying premise is that economic tinkering is simply not sufficient to meet the new economic challenges and people’s changing needs and desires. Economists and economic policy makers go on tinkering because that is what they have been taught to do; it is relatively comfortable and easy; and when you get right down to it, it is what the system ‘allows’. So they go on polishing the economic lens, not noticing that over time it has developed serious cracks that distort our overall vision. The presumed either-or choice between laissez-faire capitalism with its unbridled individualism, or the centralized collectivism of socialism is a symptom of this distortion. A new lens would allow us to see that neither is fully acceptable, for both systems have grown in the common soil of the mechanistic economic paradigm that has prevailed for over 300 years, but which is now clearly obsolete. This paradigm, constructed on the methodology of Sir Isaac Newton’s 17th century mechanistic physics, views the economic process as a circular merry-go-round that does not affect the environment of matter and energy and sees the economy as a giant machine in which it is possible to isolate individual components. Would that the world operated so neatly. The arduous task of developing a new alternative economic paradigm thus begins with recognizing the fundamental principle of interrelatedness and once again marries economics with an ethical framework based on
FUTURES
December
1989
610
Ethicaleconomics
universal, time-honoured values. Every decision we make, every judgment we render, every action we prepare to take-unless it is utter@ triviat or whoify technical-has a moraf dimension. We can scarcely treat economics as autonomous from the moral reaim if we believe that anything of value is at stake in economic decisions. Even when performance is ‘good’, many people sense something is still wrong. What is hard to discern is that the values inherent in economics and our economic system, never made explicit, are in fact quite at odds with our personal values. A fundamen@ mismatch has been allowed quietty to develop. An ethical economics therefore is for those who are discomforted by this mismatch and would like to see their economy and the global economy work for, not against, cherished values. It is for those who wish to see the economic cotossus channelled better to meet human, nat technical, ends. An appeal
to the
heart
The construction of an ethical economics is long overdue, for the moral and intellectual shortcomings of current approaches to economic issues have been increasingly evident over the past 15 years. it should tap into a deep, pent-up desire many people have for an economics that wifl speak not only to the thoughts of the mind but to the concerns of the heart and the conscience as well. Beginning with the publication of future Shock in 1970 and continuing through to Meg&rends in 1982, millions of people have been introduced to the future. The find it fascinating, but also frightening. During this same period, economic literacy increased tremendous@. The economy, interest rates, and deficits are now no longer abstractions but concrete realities experienced daily. They are discussed on the front pages of newspapers and often on the nightly news. People easily become worried as they hear about the decline of basic industry, persistently high interest rates, and evermounting deficits. Confronted by the sweeping changes they hear about from the futurists and the increasingly serious economic problems they see atf around them, they turn to the politicians and economic specialists to learn how these chaltenges are going to be met. And what answers do they hear? From incumbent presidents, they always hear ‘Stay the course’ and all will be well. From the opposition party, they often hear a confusing potpourri of alternative policies fbut nothing too dramatic), with ad hoc promises to meet the needs of various speciat interest groups. From the economists, they hear about supply-side economics, monetarism and industrial policy. While there is a babble of voices spouting pet policies, rarely does anyane clearly lay out the primary goal or set of integrated goals to be met. And certainty no one articufates the ethical foundation upon which their policy superstructure is erected, fn short, we have literally hundreds of new economic policy prescriptions offered each year, all operating in an ethical vacuum. So while the mind may be engaged, the heart is not captured. What many people are hungering for as they face bewildering forces of socioeconomic and rapid technological change is what Theodore Roszak has called a ‘nobler economics that is not afraid to discuss spirit and conscience,
FUTURES December 1989
Ethical economics
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moral purpose and the meaning of life, an economics that aims to educate and elevate people, not merely to measure their low-grade behavior’. This is a pretty broad mandate for economics, definitely too broad when it touches economics can strive not only to on ‘the meaning of life’. But certainly educate people but to elevate their thinking. An ethical economics could provide this ‘nobler’ approach that the world wants and needs as a new framework for economic policy formulation.
From a master economy
to a servant economy
With this as background, we can venture into three substantive arenas: (I) an assessment of current economies; (2) the core values of a new ethical economics; (3) the new questions of assessment and purpose. Let us begin with the question, ‘Is our national economy performing well or poorly ?‘. This raises the question, ‘How do we judge whether our economy is performing well or poorly ?‘. Regardless of the material performance of various indicators, all industrialized economies are doing poorly because of one serious but overlooked flaw-the economy basically acts as master, rather than as servant, of the people. Simply put, the people are shaped to serve the economic system rather than the system being shaped to serve the people. This is supremely ironic, for the economic system has not been divinely inspired or imposed on humans from without. It is the creation of human minds and activities. Yet the creature has been allowed to take charge over its creators. Consider, for instance, that literally millions of couples today either need, or have the desire, both to work; yet they also want to be good parents and enjoy family life. So these couples go on living lives of quiet desperation, often laden with guilt, as they try to juggle day care and jobs. It should not be so difficult to create, instead, a flexible labour market combining flexitime, respected part-time jobs, and job sharing-so that parents can more easily spend the time they want with their children while still retaining their jobs. The master economy has as its major goals economic growth and personal material progress. But a sizeable number have been left out in the inequitable distribution of income and wealth and there are increasingly clear signs that many children already can expect to achieve less than their parents. Moreover, many polls in the past two decades have indicated that affluence and material comfort have not brought a sense of purpose, fulfilment, and peace of mind. And here our current master economy fails to fulfil one of the most fundamental functions of a society, namely to provide each individual with an opportunity to contribute honourable labour to the society, build self-respect and gain the respect of others. It fails to foster socially responsible management of the development and application of technology. And it fails to develop and sustain the habitability of the planet. These are symptoms of a society facing a major challenge requiring solemn evaluation and resolution in terms of ethical principles. As modern people, we have bought into the prevailing set of valuesoften only implicit-that undergirds the industrial era worldview: the
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Ethical economics
priority of efficiency and economic profit; an individualistic ethic; the technological imperative; belief in the inevitability and desirability of limitless growth. Once we make these current values explicit and examine them closely, we can begin to understand the moral bankruptcy of current economic thought, which deals almost exclusively with describing and maintaining what ‘is’, shunning any questions of what ‘ought’ to be. Modern economic theory has no categories of thought that might be used to address how the improved welfare of mankind should be pursued. implicitly, it supports the status quo, with its faults as well as its benefits. The price that we pay for this is high. The world has come to the point where the materialistic values of the industrial era manifest themselves by styles of life that seem dazzlingly rich in every dimension except that of the human person. To create conditions that will encourage richness in the human dimension requires a new economic paradigm incorporating a fresh set of person-oriented and naturecentred values. This new ethical economics will address issues of spirit, conscience, and moral purpose and will aim to educate and evaluate people. Only with a firm ethical foundation could we begin fashioning a true ‘servant economy’ one in which the economic system is designed to meet people’s qualitative as well as quantitative desires. Guiding this servant economy would be a qualitative growth ethic. This ethic would lead to a reversal of the current emphasis on quantity over quality, means over ends, structures over values, exploiting the environment over sustaining its resources, and the individual over the community. It would be more cognizant of the organic wholeness of life and our fundamental linkage with each other and with nature.
Core values of an ethical economics So how does one begin constructing an ethical foundation for economics? One begins by examining our rich historical sources, extending back over a 3500-year tradition. In doing so, we see that economic policies have had an explicit ethical content, from the time of the Mosaic laws in 1500 BC to the writings of classical economists in the later 18th and early 19th centuries. In the Judaeo-Christian tradition, a well defined set of ethical economic standards is found in the Bible. The cornerstone of these standards is the concept of economic justice, whose foundation is clearly laid in the Mosaic laws. These Old Testament laws limited property rights in such a way as to assure both short- and long-run provision of necessary material goods to all families and individuals. In addition, there were also laws limiting the degree to which ownership and control of the basic resources of production could become concentrated in a few hands. In short, justice and mercy were the guiding principles of social behaviour. The New Testament also stresses the underlying theme of the Old Testament-affjrming the value of caring for the poor and being of service to those in need. Another source of ethical economic thought is found in classical G reece. Plato was the first to attempt a systematic exposition of the principles of society as well as a plan for the ideal social structure. But it was his pupil Aristotle who laid the foundations of much of later economic
FUTURES
December 1989
Ethical
thought
by posing
the economic
problems
with which
economics
all later thinkers
613
have
been concerned. One such problem is the purpose of exchange. To Aristotle, when the natural purpose of exchange, the more abundant satisfaction of wants, is lost sight of, the accumulation of money becomes an end in itself. And the worst form of money making is that which uses money itself as the source In these views, Aristotle shows himself to be of accumulation-usury. anxious to limit the scope of commerce by setting it in an ethical context. Finally, the distinguishing characteristic of the classical economists in the 18th century was their rigorous analysis laying bare the systemic workings of the capitalist system. But ethical concerns remained important. Indeed, to these founders of modern economics, the important test of economic institutions and policies, once analysed, was their likely effect on personal character. Adam Smith, for instance, wrote the Theory of Moral Sentiments partly to warn about the stultifying effects of specialization. T. R. be compelled to Malthus, in his Principles text, stated that ‘we shall acknowledge that the science of Political Economy bears a nearer resemblance to the science of morals and politics than to that of mathematics’. Thus, the modern discipline of economics originally began as a branch of moral philosophy and so ethical content was at least as important as analytical content up until the work of Alfred Marshall in the 1870s. The fascinating insight that emerges is that it is only in a relatively few decades of the modern era that economics has been divorced from moral concerns. Thus, what we tend to view as a norm, since it is our only experience, is actually quite abnormal in the scope of economic history. Given these three historical strands of thought and practice, there are three core values that would go into fashioning an ethical economics framework: (1) the paradigm underlying economic thinking must be expanded well beyond that which is now considered ‘economic’, becoming holistic rather than purely materialistic in its concerns; (2) economic justice should become the overarching value of this paradigm, encompassing all that goes into a respect for people and development of a mutuality of relationship at home and abroad; (3) a complementary conservation ethic would incorporate into the paradigm our responsibility to respect nature and exercise a just stewardship of the globe for future generations. A holistic view assumes that any sharp distinction between what is economic and what is noneconomic tends to break down. Problems cannot be readily put into distinct boxes labelled economic, political, sociological, and so on. By looking at the whole picture, economic analysis will then encompass consideration of many non-economic factors and trends; develop a long-run analysis capability; and incorporate explicitly the workings of the global economy and subnational economies into its domestic, national considerations. These changes are direct, simple to understand, yet far-reaching. One of the key elements of the new holistic framework will be the revival of the concept of political economy. The goal is to move towards an economic system that first recognizes more precisely people’s needs and aspirations, in all their diversity-including the moral-spiritual dimension that was lost with the divorce of political science for economics-and then seeks the most effective and just means to achieve them.
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Ethical economics
To assist in this, economics must develop again a political focus as it sorts out and translates the diverse values, needs and priorities of the citizenry. Questions of equity and disitribution, as well as of institutional power, will have to be explicitly considered. There can be no doubt that economics has become inextricably linked with politics and cannot be fully understood through the elegant mathematical models that excise these components. When this orientation is achieved, the new specialism can rightfully take on economics‘ original title-political economics. If the whole is to be examined, what does this require of economists? It means that economists are going to have to become generalists or holistic economists who will balance, synthesize and integrate the work of specialists, bringing it to bear on public policy. Such economists will have to cooperate with anthropologists, sociologists, political scientists and industrial psychologists in the study of economic behaviour. On fundamental questions of ethical economics, economists might engage in discussion and research with theologians, philosophers, and Marxist theoreticians. The holistic economists, in general, will have to be flexible in recognizing the light that various disciplines can shed on economic matters. Such a new breed of economist would also recognize that any economic paradigm, economic system, or simply a set of economic policies, contains implicit or explicit values and beliefs regarding the two foundational elements: people and nature. These are the two primary resources from which all else is constructed. Thus, the core values in ethical economicseconomic justice and a conservation ethic-embody a basic respect for people and a basic respect for nature. The second element, economic jusfice, best embodies the set of values that justifies and supports a respect for people. Each individual, as a unique member of the human community, is worthy of the respect and affirmation of others, and of life opportunities necessary for building a sense of human dignity. Such human dignity is vital not only for individual self-fulfilment, but also to enable and encourage individuals to cooperate with and contribute to the larger community. Built upon this premise, economic justice requires that an economic system be so structured that: o all are assured of access to the basic necessities of life at all times; all are provided with the opportunity to develop and use their talents and resources in such a way that they can provide for their own needs (at least in the long run) and contribute to those of the commun;ty; l all are provided with the economic and political freedom necessary to enable them to exercise responsible economic stewardship of their resources (this includes being reponsible economic decision makers in the area of production as well as in consumption); and l limits are placed on the concentration of wealth, income and economic power that perpetuate inequity. l
Thus, an ethical economics would evaluate economic institutions and actions primarily on the basis of how well they promote this sort of economic justice for all people. And it would ask whether these institutions and actions provide access to necessities for those who temporarily cannot now and in future generations. Such an ethical provide for themselves,
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Ethical
economics
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economics would not consider growth in GNP or efficiency of production as goals in their own right, but would consider them desirable only to the extent that they contributed to the goals outlined above, and undesirable if they detracted from, or could be accomplished only at the expense of them. A conservation ethic, bringing a complementary dignity to nature, would mean using the minimum amount of resources deemed necessary to carry out an activity or produce a product without resulting in undesirable side effects. Such an ethic focuses on conserving limited resources that are threatened by a single-minded concentration on more and more production. It is global in this orientation. The conservation ethic also carries a concern for generations yet unborn-conserving the future prospects of life on this planet. It ultimately seeks to illuminate a crucial choice confronting the late 20th century world: either we must severely limit our unwise use of natural resources and the environment for the sake of the future, or we shall have a limited future. This ethic will require a substantial change in economic thinking. For, even though all principles of economics courses teach that one of the central tenets of economics is that there are three factors of productionland, labour, and capital-mainstream economists beginning in the 1870s began to leave land out of the analytical picture. The harsh realities of limited natural resources require a quick reversal of this approach. Instead of largely ignoring the ‘land’ factor or treating its features as ‘externalities’ to the ongoing workings of the economic process, economics needs to be reorganized around the fact that natural resources and the physical environment constitute the fundamental foundation upon which all economic activity is constructed. Recognizing this, the goal of sustainable growth would become central to the new economic paradigm. Unlike the concept of a ‘steady-state economy’, in which population and physical capital are maintained at constant levels, sustainable growth recognizes the necessity of continued economic growth so as to meet global basic human needs while also underscoring the growth must be of such a nature that it can be sustained indefinitely by respecting nature’s boundary conditions. The conservation ethic and the goal of sustainable growth require the development of a specialist field-bioeconomics-constructed around a few key elements: (1) the relationship between conventional capital and biological capital (the ecosphere); (2) the assignment of values to nonmarket goods and services (eg the maintenance of the global carbon balance and atmospheric stability); (3) the full integration into economics of the entropy law, the second law of thermodynamics, which posits that matter and energy can only be changed in one direction, from usable to unusable, from ordered to disordered, from available to unavailable; (4) the incorporation of such key biological concepts as carrying capacity and the S-shaped growth curve into economic theory and analyses.
Shaping a humane
policy agenda
Finally, we must use these core values as the basis for developing a whole new set of questions to ask of economies and economic systems. First, there are new questions of assessment. Currently the questions
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1989
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Fthical economics
predomi~antfy asked, while necessary, only skim the surface of what an economic system should be all about. Are inflation, employment, and economic growth up or down? Is the deficit harmful or harmless? Where are interest rates headed? Such questions should be seen as only one layerand a surface one at that. A much broader underlying set of questions that would provide a more comprehensive assessment of whether a nation’s economy is performing weft or poorly, would include: l
l
+ * * l
*
l
*
Who are the recent and current winners and losers from the economy’s performance? What is the impact of our current labour market structure on marriages and the family? What is a just definition of ‘full’ employment and how can we achieve it? Does the current income djstribut~on meet basic equity standards? Is there an increasing polarization of wages and hence a declining middle class? Is growth occuring at the expense of the natural resource and environmental base? Do our economic policies promote or hinder economic progress in lesser developed nations ? fs our growth at their expense? Does their underdevelopment persist at our expense? How sound is an economy built on an ever-growing mountain of debt-right from the consumer, through corporations, to the federal government? How sustainable is our current path and pattern of economic growth?
Whereas
these questions of assessment are usually neglected, it is safe to say that a second set of questions of purpose-of goals-is almost completely forgotten.
Here we get to questions
such as:
* Should our economic system provide each citizen with access to necessities at all times? + Should our economic system enable all famifies to provide for their own needs? l Should we reduce the inequalities in distribution of wealth, income and economic power? l Should the economic system be more clearly rooted in a belief in the value of each individual human being and committed in concrete ways to protecting indivjdual freedom and op~o~unity for individual creative development and expression? l Should the economic system be reshaped so as to support the basic unity of the human family and should economic success be measured in terms of the economic undergirding of mutual respect in the life of the community? These are nut strictly economic questions. They are essential@ ethical questions, deafing with what broader social goats we want our economic system to serve. They ultimately become economic, for once they are answered changes both in the structure and operating mode of our economic system and in the internal workings of its major institutions will be catted for.
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Ethicaleconomics
617
Work is one specific area in which questions of purpose should be at the forefront. The central question should be: what is the purpose of production? If the answer is the multiplication of products and profit, then workers will be easily expendable for efficiency’s sake or for the sake of maximizing profits. If, on the other hand, the purpose of production is seen as the service of the whole individual, both worker and consumermaterially, intellectually, morally, and spiritually-then the basic dignity of the person is not only maintained but enhanced. The most exciting dimension of these new questions of assessment and purpose is that they are not partisan or ideological. They can be asked by adherents to any major political party and by individuals of various creeds. Whether such questions ever do get widely asked and debated depends in the final analysis on whether some attention can once again be directed to ‘we’. For these are essentially ‘we’, not ‘me’, questions. They ask, in essence: Are ‘we’ as a people better off and do ‘we’ as a people want to become better off? As such, they help to restore a critical and healthy balance between individual and societal well-being.
The basic choice So where does all this lead us? It leads right up to the basic choice regarding what economic approach we are going to take and what type of economy we are going to live in. If people were asked to cite the major choice regarding economics and/or economic systems, most would be likely to point to the choice between socialism and capitalism. A second group would point to the choice between big government policies and limited government policies. A final, more specialized group of economists would raise the choice between Keynesianism and monetarism. And yet all these choices with which we are most familiar are not the fundamental choice before us. All still operate within the now obsolete industrial era worldwiew. They all subscribe to and operate under its attendant materialistic values. Hence, the choice comes down to this: either we continue to operate in unquestioning fashion under the values, rules and resulting policies of the mechanistic economic paradigm, or we establish a new holistic, ethical economics paradigm that fundamentally and concretely reflects a deep respect for the dignity of people and nature. The first might be called the ‘fingers crossed’ choice, whereby we continue stumbling along an uncertain path, trying new policy twists as each obstacle appears in our way. In essence we hope that these ad hoc, marginal changes to the system will be good enough to get us by without basic damage to individuals and the social fabric. By contrast, the second is the ‘eyes ahead’ choice. It establishes as guiding principles the values that are necessary for equitable and sustained economic progress to take place. Once the values are in place, the long-run priorities can be determined, the immediate policy alternatives can be weighted, and people can begin working together on their shared future. We must not delude ourselves that the alternative to be chosen is ‘obvious’. That which is most natural, logical, or morally compelling often does not turn out to be victorious. Often the great conqueror is the mighty
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1989
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Ethical
economics
force on inertia. The ‘fingers crossed’ choice has 300 years of practice undergirding that inertia. Thus, attaining an ethical economics worldview will require a blend of clear-sightedness, creativity, courage, and most of all, commitment. It will also require practical exploration of specific institutional structures and policy goals. The choice between the current and a new economic paradigm should be seen and understood in its historical context. In 200 years of Western economic thought, there have been three very different guiding forces for the economy. First, Adam Smith’s ‘invisible hand’ directed economic matters for 100 years. In the 187Os, Alfred Marshall brought in marginal analysis, mathematics and the scientific method as supplementary guiding tools. Finally, John Maynard Keynes in the 1930s established government as the very visible guiding hand. The time is ripe for a fourth force to exert itself. That force is the dominant values of the citizenry, firmly rooted in long-standing and rich intellectual and philosophic-religious traditions. With such values as the guiding force, the resulting economy will indeed become a servant to, not a master of, the people.
FUTURES
December
1989
ETHICAL
ECONOMICS
A new paradigm and stewardship
for global
justice
Robert D. Hamrin
Economics must return to its roots, which lie in ethics and moral philosophy. Key economic issues today are essentially moral onesunemployment, income inequality, environmental damage-thus rendering a new ethical economics paradigm an urgent requirement. In this article the specific elements of an ethical framework are considered, and the items on the humane, ethical economic policy agenda are outlined. In economics, the number one priority must be a return to its roots, which lie in ethics and moral philosophy. Only by doing so can we begin to recognize that most of today’s key economic problems-outrageously high unemployment levels in the context of ‘full employment’, increases in poverty, increasing inequality in distribution of income, the continuing destruction of biological capital (the ecosphere)-are fundamentally moral issues. Today, they are certainly not recognized as such nor are they even Why is it that these indices portraying basically poor being discussed. economic performance in the past few years go largely unnoticed and thus unchallenged? The answer is profoundly simple, involving a fatal sequence: (I) economists and policy makers are operating under the 300-year-old mechanistic economic paradigm of the industrial era which excludes all moral or ethical considerations; (2) hence we are not asking the right questions about our economy, nor are we making the proper requests of it; (3) thus, without a moral or ethical foundation, national political leaders and economists are attempting to erect their economic policy house on shifting sand. Given this, the world’s economic agenda should be: (I) construct a new ethical economics foundation, a new economic paradigm or economic ‘lens’ through which to view the global economy, that would tackle head-on the disengagement of modern economics and economic policy from ethical values; (2) develop the proper questions to ask, questions of assessment that probe deeper regarding the economy‘s current performance and
Robert D. Wamrin is an independent economic consultant. His principal clients are Robert Nathan Associates and Van Dyk Associates, in Washington, DC. He can be contacted at 1301 Pennsylvania Avenue NW, Suite 900, Washington DC, 20004, USA.
0016-3287/89/060608-11$0.300@l989
Butterworth
& Co (Publishers)
Ltd
FUTURES
December
1989
Ethical economics
609
questions of purpose regarding what the economy should be accomplishing; (3) develop the individual policy initiatives that would effectively address the questions and goals that emerge from an ethical economics. Before considering the specific elements of an ethical economics framework, I present the reasons why it is so urgently needed and some general observations as to why is should be well received.
Why an ethical economics
is needed
An ethical economics would basically provide a new economic lens through which individuals could more clearly see the world. We need a new lens to see clearly the economic injustice of telling millions of unemployed that the economy is at or near full employment and the hundreds of millions living in poverty that all is well in the global economy. We need a new framework to understand that the economic process is violating the environment and selling the future short with acid rain, toxic wastes, and groundwater contamination. Most fundamentally, we need a new paradigm that does not reduce each person to a wooden, purely rational ‘economic man’ but elevates people to their proper stature as complex physical/spiritual beings with individual needs, motivations, and life-purposes that are often irrationally human. An overtly ethical approach to economic matters in this increasingly technological age would allow all of us to ask better questions in assessing true economic progress and for the first time to raise questions of ‘How much economic growth?‘, but ‘Economic purpose-not merely, growth for what and for whom?‘. Only by asking such questions can the core values of an ethical economics-economic justice for people and stewardship of natural resources and the environment-become firmly rooted in policy. The underlying premise is that economic tinkering is simply not sufficient to meet the new economic challenges and people’s changing needs and desires. Economists and economic policy makers go on tinkering because that is what they have been taught to do; it is relatively comfortable and easy; and when you get right down to it, it is what the system ‘allows’. So they go on polishing the economic lens, not noticing that over time it has developed serious cracks that distort our overall vision. The presumed either-or choice between laissez-faire capitalism with its unbridled individualism, or the centralized collectivism of socialism is a symptom of this distortion. A new lens would allow us to see that neither is fully acceptable, for both systems have grown in the common soil of the mechanistic economic paradigm that has prevailed for over 300 years, but which is now clearly obsolete. This paradigm, constructed on the methodology of Sir Isaac Newton’s 17th century mechanistic physics, views the economic process as a circular merry-go-round that does not affect the environment of matter and energy and sees the economy as a giant machine in which it is possible to isolate individual components. Would that the world operated so neatly. The arduous task of developing a new alternative economic paradigm thus begins with recognizing the fundamental principle of interrelatedness and once again marries economics with an ethical framework based on
FUTURES
December
1989
610
Ethicaleconomics
universal, time-honoured values. Every decision we make, every judgment we render, every action we prepare to take-unless it is utter@ triviat or whoify technical-has a moraf dimension. We can scarcely treat economics as autonomous from the moral reaim if we believe that anything of value is at stake in economic decisions. Even when performance is ‘good’, many people sense something is still wrong. What is hard to discern is that the values inherent in economics and our economic system, never made explicit, are in fact quite at odds with our personal values. A fundamen@ mismatch has been allowed quietty to develop. An ethical economics therefore is for those who are discomforted by this mismatch and would like to see their economy and the global economy work for, not against, cherished values. It is for those who wish to see the economic cotossus channelled better to meet human, nat technical, ends. An appeal
to the
heart
The construction of an ethical economics is long overdue, for the moral and intellectual shortcomings of current approaches to economic issues have been increasingly evident over the past 15 years. it should tap into a deep, pent-up desire many people have for an economics that wifl speak not only to the thoughts of the mind but to the concerns of the heart and the conscience as well. Beginning with the publication of future Shock in 1970 and continuing through to Meg&rends in 1982, millions of people have been introduced to the future. The find it fascinating, but also frightening. During this same period, economic literacy increased tremendous@. The economy, interest rates, and deficits are now no longer abstractions but concrete realities experienced daily. They are discussed on the front pages of newspapers and often on the nightly news. People easily become worried as they hear about the decline of basic industry, persistently high interest rates, and evermounting deficits. Confronted by the sweeping changes they hear about from the futurists and the increasingly serious economic problems they see atf around them, they turn to the politicians and economic specialists to learn how these chaltenges are going to be met. And what answers do they hear? From incumbent presidents, they always hear ‘Stay the course’ and all will be well. From the opposition party, they often hear a confusing potpourri of alternative policies fbut nothing too dramatic), with ad hoc promises to meet the needs of various speciat interest groups. From the economists, they hear about supply-side economics, monetarism and industrial policy. While there is a babble of voices spouting pet policies, rarely does anyane clearly lay out the primary goal or set of integrated goals to be met. And certainty no one articufates the ethical foundation upon which their policy superstructure is erected, fn short, we have literally hundreds of new economic policy prescriptions offered each year, all operating in an ethical vacuum. So while the mind may be engaged, the heart is not captured. What many people are hungering for as they face bewildering forces of socioeconomic and rapid technological change is what Theodore Roszak has called a ‘nobler economics that is not afraid to discuss spirit and conscience,
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moral purpose and the meaning of life, an economics that aims to educate and elevate people, not merely to measure their low-grade behavior’. This is a pretty broad mandate for economics, definitely too broad when it touches economics can strive not only to on ‘the meaning of life’. But certainly educate people but to elevate their thinking. An ethical economics could provide this ‘nobler’ approach that the world wants and needs as a new framework for economic policy formulation.
From a master economy
to a servant economy
With this as background, we can venture into three substantive arenas: (I) an assessment of current economies; (2) the core values of a new ethical economics; (3) the new questions of assessment and purpose. Let us begin with the question, ‘Is our national economy performing well or poorly ?‘. This raises the question, ‘How do we judge whether our economy is performing well or poorly ?‘. Regardless of the material performance of various indicators, all industrialized economies are doing poorly because of one serious but overlooked flaw-the economy basically acts as master, rather than as servant, of the people. Simply put, the people are shaped to serve the economic system rather than the system being shaped to serve the people. This is supremely ironic, for the economic system has not been divinely inspired or imposed on humans from without. It is the creation of human minds and activities. Yet the creature has been allowed to take charge over its creators. Consider, for instance, that literally millions of couples today either need, or have the desire, both to work; yet they also want to be good parents and enjoy family life. So these couples go on living lives of quiet desperation, often laden with guilt, as they try to juggle day care and jobs. It should not be so difficult to create, instead, a flexible labour market combining flexitime, respected part-time jobs, and job sharing-so that parents can more easily spend the time they want with their children while still retaining their jobs. The master economy has as its major goals economic growth and personal material progress. But a sizeable number have been left out in the inequitable distribution of income and wealth and there are increasingly clear signs that many children already can expect to achieve less than their parents. Moreover, many polls in the past two decades have indicated that affluence and material comfort have not brought a sense of purpose, fulfilment, and peace of mind. And here our current master economy fails to fulfil one of the most fundamental functions of a society, namely to provide each individual with an opportunity to contribute honourable labour to the society, build self-respect and gain the respect of others. It fails to foster socially responsible management of the development and application of technology. And it fails to develop and sustain the habitability of the planet. These are symptoms of a society facing a major challenge requiring solemn evaluation and resolution in terms of ethical principles. As modern people, we have bought into the prevailing set of valuesoften only implicit-that undergirds the industrial era worldview: the
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priority of efficiency and economic profit; an individualistic ethic; the technological imperative; belief in the inevitability and desirability of limitless growth. Once we make these current values explicit and examine them closely, we can begin to understand the moral bankruptcy of current economic thought, which deals almost exclusively with describing and maintaining what ‘is’, shunning any questions of what ‘ought’ to be. Modern economic theory has no categories of thought that might be used to address how the improved welfare of mankind should be pursued. implicitly, it supports the status quo, with its faults as well as its benefits. The price that we pay for this is high. The world has come to the point where the materialistic values of the industrial era manifest themselves by styles of life that seem dazzlingly rich in every dimension except that of the human person. To create conditions that will encourage richness in the human dimension requires a new economic paradigm incorporating a fresh set of person-oriented and naturecentred values. This new ethical economics will address issues of spirit, conscience, and moral purpose and will aim to educate and evaluate people. Only with a firm ethical foundation could we begin fashioning a true ‘servant economy’ one in which the economic system is designed to meet people’s qualitative as well as quantitative desires. Guiding this servant economy would be a qualitative growth ethic. This ethic would lead to a reversal of the current emphasis on quantity over quality, means over ends, structures over values, exploiting the environment over sustaining its resources, and the individual over the community. It would be more cognizant of the organic wholeness of life and our fundamental linkage with each other and with nature.
Core values of an ethical economics So how does one begin constructing an ethical foundation for economics? One begins by examining our rich historical sources, extending back over a 3500-year tradition. In doing so, we see that economic policies have had an explicit ethical content, from the time of the Mosaic laws in 1500 BC to the writings of classical economists in the later 18th and early 19th centuries. In the Judaeo-Christian tradition, a well defined set of ethical economic standards is found in the Bible. The cornerstone of these standards is the concept of economic justice, whose foundation is clearly laid in the Mosaic laws. These Old Testament laws limited property rights in such a way as to assure both short- and long-run provision of necessary material goods to all families and individuals. In addition, there were also laws limiting the degree to which ownership and control of the basic resources of production could become concentrated in a few hands. In short, justice and mercy were the guiding principles of social behaviour. The New Testament also stresses the underlying theme of the Old Testament-affjrming the value of caring for the poor and being of service to those in need. Another source of ethical economic thought is found in classical G reece. Plato was the first to attempt a systematic exposition of the principles of society as well as a plan for the ideal social structure. But it was his pupil Aristotle who laid the foundations of much of later economic
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Ethical
thought
by posing
the economic
problems
with which
economics
all later thinkers
613
have
been concerned. One such problem is the purpose of exchange. To Aristotle, when the natural purpose of exchange, the more abundant satisfaction of wants, is lost sight of, the accumulation of money becomes an end in itself. And the worst form of money making is that which uses money itself as the source In these views, Aristotle shows himself to be of accumulation-usury. anxious to limit the scope of commerce by setting it in an ethical context. Finally, the distinguishing characteristic of the classical economists in the 18th century was their rigorous analysis laying bare the systemic workings of the capitalist system. But ethical concerns remained important. Indeed, to these founders of modern economics, the important test of economic institutions and policies, once analysed, was their likely effect on personal character. Adam Smith, for instance, wrote the Theory of Moral Sentiments partly to warn about the stultifying effects of specialization. T. R. be compelled to Malthus, in his Principles text, stated that ‘we shall acknowledge that the science of Political Economy bears a nearer resemblance to the science of morals and politics than to that of mathematics’. Thus, the modern discipline of economics originally began as a branch of moral philosophy and so ethical content was at least as important as analytical content up until the work of Alfred Marshall in the 1870s. The fascinating insight that emerges is that it is only in a relatively few decades of the modern era that economics has been divorced from moral concerns. Thus, what we tend to view as a norm, since it is our only experience, is actually quite abnormal in the scope of economic history. Given these three historical strands of thought and practice, there are three core values that would go into fashioning an ethical economics framework: (1) the paradigm underlying economic thinking must be expanded well beyond that which is now considered ‘economic’, becoming holistic rather than purely materialistic in its concerns; (2) economic justice should become the overarching value of this paradigm, encompassing all that goes into a respect for people and development of a mutuality of relationship at home and abroad; (3) a complementary conservation ethic would incorporate into the paradigm our responsibility to respect nature and exercise a just stewardship of the globe for future generations. A holistic view assumes that any sharp distinction between what is economic and what is noneconomic tends to break down. Problems cannot be readily put into distinct boxes labelled economic, political, sociological, and so on. By looking at the whole picture, economic analysis will then encompass consideration of many non-economic factors and trends; develop a long-run analysis capability; and incorporate explicitly the workings of the global economy and subnational economies into its domestic, national considerations. These changes are direct, simple to understand, yet far-reaching. One of the key elements of the new holistic framework will be the revival of the concept of political economy. The goal is to move towards an economic system that first recognizes more precisely people’s needs and aspirations, in all their diversity-including the moral-spiritual dimension that was lost with the divorce of political science for economics-and then seeks the most effective and just means to achieve them.
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To assist in this, economics must develop again a political focus as it sorts out and translates the diverse values, needs and priorities of the citizenry. Questions of equity and disitribution, as well as of institutional power, will have to be explicitly considered. There can be no doubt that economics has become inextricably linked with politics and cannot be fully understood through the elegant mathematical models that excise these components. When this orientation is achieved, the new specialism can rightfully take on economics‘ original title-political economics. If the whole is to be examined, what does this require of economists? It means that economists are going to have to become generalists or holistic economists who will balance, synthesize and integrate the work of specialists, bringing it to bear on public policy. Such economists will have to cooperate with anthropologists, sociologists, political scientists and industrial psychologists in the study of economic behaviour. On fundamental questions of ethical economics, economists might engage in discussion and research with theologians, philosophers, and Marxist theoreticians. The holistic economists, in general, will have to be flexible in recognizing the light that various disciplines can shed on economic matters. Such a new breed of economist would also recognize that any economic paradigm, economic system, or simply a set of economic policies, contains implicit or explicit values and beliefs regarding the two foundational elements: people and nature. These are the two primary resources from which all else is constructed. Thus, the core values in ethical economicseconomic justice and a conservation ethic-embody a basic respect for people and a basic respect for nature. The second element, economic jusfice, best embodies the set of values that justifies and supports a respect for people. Each individual, as a unique member of the human community, is worthy of the respect and affirmation of others, and of life opportunities necessary for building a sense of human dignity. Such human dignity is vital not only for individual self-fulfilment, but also to enable and encourage individuals to cooperate with and contribute to the larger community. Built upon this premise, economic justice requires that an economic system be so structured that: o all are assured of access to the basic necessities of life at all times; all are provided with the opportunity to develop and use their talents and resources in such a way that they can provide for their own needs (at least in the long run) and contribute to those of the commun;ty; l all are provided with the economic and political freedom necessary to enable them to exercise responsible economic stewardship of their resources (this includes being reponsible economic decision makers in the area of production as well as in consumption); and l limits are placed on the concentration of wealth, income and economic power that perpetuate inequity. l
Thus, an ethical economics would evaluate economic institutions and actions primarily on the basis of how well they promote this sort of economic justice for all people. And it would ask whether these institutions and actions provide access to necessities for those who temporarily cannot now and in future generations. Such an ethical provide for themselves,
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economics
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economics would not consider growth in GNP or efficiency of production as goals in their own right, but would consider them desirable only to the extent that they contributed to the goals outlined above, and undesirable if they detracted from, or could be accomplished only at the expense of them. A conservation ethic, bringing a complementary dignity to nature, would mean using the minimum amount of resources deemed necessary to carry out an activity or produce a product without resulting in undesirable side effects. Such an ethic focuses on conserving limited resources that are threatened by a single-minded concentration on more and more production. It is global in this orientation. The conservation ethic also carries a concern for generations yet unborn-conserving the future prospects of life on this planet. It ultimately seeks to illuminate a crucial choice confronting the late 20th century world: either we must severely limit our unwise use of natural resources and the environment for the sake of the future, or we shall have a limited future. This ethic will require a substantial change in economic thinking. For, even though all principles of economics courses teach that one of the central tenets of economics is that there are three factors of productionland, labour, and capital-mainstream economists beginning in the 1870s began to leave land out of the analytical picture. The harsh realities of limited natural resources require a quick reversal of this approach. Instead of largely ignoring the ‘land’ factor or treating its features as ‘externalities’ to the ongoing workings of the economic process, economics needs to be reorganized around the fact that natural resources and the physical environment constitute the fundamental foundation upon which all economic activity is constructed. Recognizing this, the goal of sustainable growth would become central to the new economic paradigm. Unlike the concept of a ‘steady-state economy’, in which population and physical capital are maintained at constant levels, sustainable growth recognizes the necessity of continued economic growth so as to meet global basic human needs while also underscoring the growth must be of such a nature that it can be sustained indefinitely by respecting nature’s boundary conditions. The conservation ethic and the goal of sustainable growth require the development of a specialist field-bioeconomics-constructed around a few key elements: (1) the relationship between conventional capital and biological capital (the ecosphere); (2) the assignment of values to nonmarket goods and services (eg the maintenance of the global carbon balance and atmospheric stability); (3) the full integration into economics of the entropy law, the second law of thermodynamics, which posits that matter and energy can only be changed in one direction, from usable to unusable, from ordered to disordered, from available to unavailable; (4) the incorporation of such key biological concepts as carrying capacity and the S-shaped growth curve into economic theory and analyses.
Shaping a humane
policy agenda
Finally, we must use these core values as the basis for developing a whole new set of questions to ask of economies and economic systems. First, there are new questions of assessment. Currently the questions
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Fthical economics
predomi~antfy asked, while necessary, only skim the surface of what an economic system should be all about. Are inflation, employment, and economic growth up or down? Is the deficit harmful or harmless? Where are interest rates headed? Such questions should be seen as only one layerand a surface one at that. A much broader underlying set of questions that would provide a more comprehensive assessment of whether a nation’s economy is performing weft or poorly, would include: l
l
+ * * l
*
l
*
Who are the recent and current winners and losers from the economy’s performance? What is the impact of our current labour market structure on marriages and the family? What is a just definition of ‘full’ employment and how can we achieve it? Does the current income djstribut~on meet basic equity standards? Is there an increasing polarization of wages and hence a declining middle class? Is growth occuring at the expense of the natural resource and environmental base? Do our economic policies promote or hinder economic progress in lesser developed nations ? fs our growth at their expense? Does their underdevelopment persist at our expense? How sound is an economy built on an ever-growing mountain of debt-right from the consumer, through corporations, to the federal government? How sustainable is our current path and pattern of economic growth?
Whereas
these questions of assessment are usually neglected, it is safe to say that a second set of questions of purpose-of goals-is almost completely forgotten.
Here we get to questions
such as:
* Should our economic system provide each citizen with access to necessities at all times? + Should our economic system enable all famifies to provide for their own needs? l Should we reduce the inequalities in distribution of wealth, income and economic power? l Should the economic system be more clearly rooted in a belief in the value of each individual human being and committed in concrete ways to protecting indivjdual freedom and op~o~unity for individual creative development and expression? l Should the economic system be reshaped so as to support the basic unity of the human family and should economic success be measured in terms of the economic undergirding of mutual respect in the life of the community? These are nut strictly economic questions. They are essential@ ethical questions, deafing with what broader social goats we want our economic system to serve. They ultimately become economic, for once they are answered changes both in the structure and operating mode of our economic system and in the internal workings of its major institutions will be catted for.
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Work is one specific area in which questions of purpose should be at the forefront. The central question should be: what is the purpose of production? If the answer is the multiplication of products and profit, then workers will be easily expendable for efficiency’s sake or for the sake of maximizing profits. If, on the other hand, the purpose of production is seen as the service of the whole individual, both worker and consumermaterially, intellectually, morally, and spiritually-then the basic dignity of the person is not only maintained but enhanced. The most exciting dimension of these new questions of assessment and purpose is that they are not partisan or ideological. They can be asked by adherents to any major political party and by individuals of various creeds. Whether such questions ever do get widely asked and debated depends in the final analysis on whether some attention can once again be directed to ‘we’. For these are essentially ‘we’, not ‘me’, questions. They ask, in essence: Are ‘we’ as a people better off and do ‘we’ as a people want to become better off? As such, they help to restore a critical and healthy balance between individual and societal well-being.
The basic choice So where does all this lead us? It leads right up to the basic choice regarding what economic approach we are going to take and what type of economy we are going to live in. If people were asked to cite the major choice regarding economics and/or economic systems, most would be likely to point to the choice between socialism and capitalism. A second group would point to the choice between big government policies and limited government policies. A final, more specialized group of economists would raise the choice between Keynesianism and monetarism. And yet all these choices with which we are most familiar are not the fundamental choice before us. All still operate within the now obsolete industrial era worldwiew. They all subscribe to and operate under its attendant materialistic values. Hence, the choice comes down to this: either we continue to operate in unquestioning fashion under the values, rules and resulting policies of the mechanistic economic paradigm, or we establish a new holistic, ethical economics paradigm that fundamentally and concretely reflects a deep respect for the dignity of people and nature. The first might be called the ‘fingers crossed’ choice, whereby we continue stumbling along an uncertain path, trying new policy twists as each obstacle appears in our way. In essence we hope that these ad hoc, marginal changes to the system will be good enough to get us by without basic damage to individuals and the social fabric. By contrast, the second is the ‘eyes ahead’ choice. It establishes as guiding principles the values that are necessary for equitable and sustained economic progress to take place. Once the values are in place, the long-run priorities can be determined, the immediate policy alternatives can be weighted, and people can begin working together on their shared future. We must not delude ourselves that the alternative to be chosen is ‘obvious’. That which is most natural, logical, or morally compelling often does not turn out to be victorious. Often the great conqueror is the mighty
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economics
force on inertia. The ‘fingers crossed’ choice has 300 years of practice undergirding that inertia. Thus, attaining an ethical economics worldview will require a blend of clear-sightedness, creativity, courage, and most of all, commitment. It will also require practical exploration of specific institutional structures and policy goals. The choice between the current and a new economic paradigm should be seen and understood in its historical context. In 200 years of Western economic thought, there have been three very different guiding forces for the economy. First, Adam Smith’s ‘invisible hand’ directed economic matters for 100 years. In the 187Os, Alfred Marshall brought in marginal analysis, mathematics and the scientific method as supplementary guiding tools. Finally, John Maynard Keynes in the 1930s established government as the very visible guiding hand. The time is ripe for a fourth force to exert itself. That force is the dominant values of the citizenry, firmly rooted in long-standing and rich intellectual and philosophic-religious traditions. With such values as the guiding force, the resulting economy will indeed become a servant to, not a master of, the people.
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1989