Future-Friendly Economies

Alternatives to an Economistic Globalization

By Daniel Mittler, BUND (Alliance for the Environment and Conservation)

[This study by BUND (German Alliance for the Environment and Conservation) and Friends of the Earth is translated abridged from the German on the World Wide Web,
www.attac.de/archiv/index.php.]


Breaking the Taboo – Seeing the Weaknesses and Errors of Neoliberal Economic Theories

Why Globalization is a Problem

We live in a world that is constantly and rapidly changing. The phenomenon of globalization promoted by new communication technologies changes ways of life and attitudes toward life. This phenomenon changes the working- and private life of every individual and human relations. Globalization has economic, political, social, cultural and technological facets. This position paper focuses on only one of these facets, the dominant neoliberal economic globalization with its far-reaching effects for persons and the environment everywhere in the world.

Neoliberal economic globalization systematically encourages individual profit mongering without worrying about the social or ecological consequences. This kind of globalization strengthens the opposition between poor and rich both nationally and internationally. It leads to a concentration of power and puts control of our natural resources in the hands of a small minority. Democracy is weakened in this way. The result is more and more economic, political and social exclusion along with economic instability. A rapid exploitation of natural resources goes along with the decline in diversity of species and cultural diversity. The development of strong local economic activity is prevented as well as the ambitious and enforceable international agreements on protection of the environment and consumers.

The “global North” (the privileged of this world mainly in industrial countries) has exploited the resources of the “global South” (the poor mainly in the so-called developing countries) for decades at dumping prices and accumulated enormous “ecological debts”. Nevertheless the countries of the South rich in raw materials see themselves subject to export pressures to only pay back their internationally recognized debts: the debts to the financial institutions of the North. Paradoxically this export-orientation of all developing countries leads to an over-supply of goods on the global markets and thus to falling raw material prices on the world market. This negative spiral of constantly declining raw material prices makes repaying their debts increasingly difficult for countries of the South.

Through these described effects, the neoliberal economic system clearly hinders the development that could encourage future-friendly social orders. A just and future-friendly society must move towards justice, democracy and future-friendly models of production and consumption. This presupposes strengthening local economic structures and local identities as well as stronger cooperation on the international plane.

Neoliberalism must give way since future-friendly societies are the only long-term chance for the survival of humanity. The time is ripe to develop alternatives and sketch the framing conditions for a future-friendly society. This is the task of this position paper.

Why Neoliberalism is Outdated

The neoliberal economic theory has several fundamental errors. The most important is probably the so-called “win-win-theory” of “comparative advantage”.

This theory says that all states realize the greatest possible economic advantage when they invest in the economic sectors where the most efficient products and services can be manufactured. These states can then interact. This theory was developed when financial capital was still anchored in national economies. Today financial capital can move worldwide at incredible speeds. The burdens for capital are open.

Financial transactions are made easier by computer. On account of this, countries that are only restrictedly attractive for finance capital (perhaps because they lack a stable economy, low wage costs or good infrastructure) have great difficulty in keeping capital in the country or attracting foreign capital. The system increasingly leads to the privileging of a few states that have an absolute positional advantage and is in no way advantageous for everyone. The assumption that every country has a relative comparative advantage in at least one area is no longer tenable in a world of liberalized financial markets.

Moreover the profits increasingly benefit businesses and their owners instead of the states where investment occurs and their citizens. On one side (domestic and foreign) investors can play off governments against one another and negotiate tax favors, subsidies and lower environmental or social standards. Multinational corporations multiply their revenues by reporting profits in countries with low tax rates. On the other side, governments increasingly resist national or regional criteria that investments really benefit citizens. The prosperity created through investment projects is in no way unconditionally passed on to the local population (as the so-called “trickle down effect” implies).

On top of this, the neoliberal economic model is not future-friendly. Those who once propagated free world trade as the solution to global economic problems probably did not suspect that a heightened need for finite raw materials would bring the economy of the 21st century to its ecological limits. Our present economic model is based on a constantly growing unsustainable consumption of resources. No “invisible hand” guides the market in the direction of future-friendliness. Resources must be managed responsibly. Sustainable societies need clear framing conditions. Therefore neoliberalism represents a “win-lose” situation for many millions today, not a “win-win” situation. These errors and weaknesses of neoliberalism are ignored. Those states with an absolute competitive advantage have built their economies on the exploitation of the resources of other countries and states. Those who have to pay off an ecological debt support the myth of neoliberal globalization and its unavoidability.

Neoliberalism has real negative consequences

Neoliberal globalization has fundamental errors in its theory and praxis. The conversion of neoliberal economic concepts has already had fatal effects on the daily life of millions of people worldwide and on their environment. This is true for farmers who cannot compete any more with the food prices from low-wage countries and for people from the South who must abandon their settlements to make room for the mammoth mines exploited for export. As a result, people even in the North are confronted with an increasingly insecure employment situation and reduce their hard-fought environmental and social standards in the name of global competition [Details about the effects of neoliberal globalization can be found in the Friends of the Earth publications “The World Trade System: How It Works and What’s Wrong with It” and “The World Trade System: Winners and Losers, a Resource Book”. Both are available at www.foe.co.uk/campaigns/sustainable_development/publications/trade.]. Therefore many people from all parts of the world took to the streets in Seattle in 1999 to protest against the World Trade Organization (WTO).

To stop the divisive process in which a few win and many lose, admitting and acknowledging the failure of neoliberalism are necessary so neoliberalism does not lead to excessive resource consumption, growing inequalities between nations and individuals and declining living standards for many people. A very different approach is necessary.

…though questioning neoliberalism is still taboo

Despite these diverse theoretical and practical problems, questioning the neoliberal model is still taboo. The neoliberal approach is a golden calf for science and politics. Those who break out of this thought pattern are punished. Their credibility is put in question or they lose their employment (as illustrated for example by the personnel restructuring at the World Bank in 2000). Any criticism endangers the winners of globalization, the persons and businesses whose wealth and powder enable them to profit from international trade. Nothing essential will change as long as this taboo continues.

We need a new approach for economic policy

Economic policy and theory must finally carry out the changeover to the 21st century. They must become more flexible, more just and future-friendly and not only revolve around money, profit and growth. Future-friendly economic policy needs to promote the diversification of economic systems and orient itself in environmental- and social interests. Economic interests need to be more transparent and more democratic. People must be better informed and participate in decisions about future-friendly forms of the economy.

Governments must agree concretely on international goals for future-compatibility in the form of social-, economic- and environmental principles. Applying one economic model for everyone is no longer in keeping with the times. Instead the advantages of economic diversity should be recognized. The subsidiarity principle should be converted in economic policy to assure that decisions are made with great public involvement.

International trade and international investments will be included in the economic model of the future. Both could be part of a future-friendly economy. However this will depend on their effects on the level and development of consumption and production, the internalization of external costs and the way of distributing their profits. The ideology of free trade should not be equated with acting in freedom.

Change of Course – Defining New Economic Goals

Future-friendly societies need strong economic systems

A healthy measure of economic activity is obviously a core element of every future-friendly society. However the character of this economic activity is crucial. An optimal economy should satisfy human needs while simultaneously reducing the exploitation of natural resources to a future-friendly measure. Access to these resources must be distributed justly within and between countries and regions.

Economic growth is not always necessary to attain these goals. Rather the unquestioning pursuit of growth strategies often counteracts these goals. Economic growth can be useful when it promotes the desired result of a sustainable economy. However the main focus of policy should be on improving the quality of economic production, not its quantity. This is especially true in the industrial countries where resource consumption at present is irresponsibly high.

Economic Diversity

The neoliberal economic model leads to a strong dependence on the world economy and to a weakening of local independence. Possibilities for diversity are hardly offered when politicians and economic institutions promote a uniform economic model. This lack in flexibility has proven to be a break for many poorer states that seek to protect national industries, promote local employment, preserve cultural diversity or limit the export of resources. This orientation encourages an unhealthy dependence on the world market as the 1997 financial crisis in Asia clearly showed. The advantages of economic diversity are simply ignored at the moment.

Diversity is an integral element of future-friendliness. This is true for all social areas including the economic realm. Economic diversity represents a diversity of economic strategies, a diversity of economic sectors and activities (not dependence on a few export- or primary goods) as well as diversity in economic actors (no monopoly structures). Countries and regional communities should have the freedom to choose economic instruments that are best suited for their regional and national environmental-, economic- and social situations. These decisions must be supported by the will to optimize economic processes and simultaneously assure a certain degree of local independence. Only in this way can strong, complex, and multi-layered economic systems arise that are a match for external shocks.

In other words, states should have the right to independently regulate and control their economy within an international framework (for protecting the environment, human rights and international justice) and on the foundations of democracy and participation. This also means that planned state economies as in the former eastern block are excluded.

Economic Subsidiarity

Economic policy affects everyone. International agreements can have far-reaching “side-effects”. Negotiations in the scope of the World Trade Organization (WTO) can directly influence production- and consumption patterns, national economic stability, currency prices, regional and domestic trade and the survival of small- and medium-sized enterprises. Spending in the public health system, education and the environment are all factors that directly influence individuals’ chances of survival.

The economic world must be opened. People must participate directly in economic decisions. This can be achieved by strictly applying the subsidiarity principle. Multi-layered decisional processes are conducive for a mutual control of decision-making groups (“checks and balances”). This could curb the likelihood of an abuse of power from the start.

What could subsidiarity mean in economic practice? One main goal would be enabling people to decide over their own needs and desires. They could identify the extent of international, regional or national trade for satisfying these needs. Local societies could determine how far they exist independent of the world economy and locally create their own jobs and prosperity. Still the possibility of pursuing trade would also be open to them. This decisional process is only conceivable in the framework of transparent and participatory structures on national and international planes. Shifting important economic decisions (for example of a market opening or the natural budgetary plan for the environment, education and the social dimension) to democratically elected governments would be another goal.

At the same time the necessity of more effective decision-making processes may not be disregarded. Clear rules must be established on the indispensable themes for a future-friendly development that cannot be solved on purely national planes. Combating poverty, border-crossing environmental pollution, future-friendly production standards and international justice are examples.

New Goals for a Future-Friendly Economy

Economic diversity and subsidiarity need a framework of common shared social- and environmental goals and rules. While many of these rules were already formulated by the United Nations, they were ignored or not applied in the economy.

Only stimulating the gross domestic product is inadequate today as an economic goal. The satisfaction of human needs through a future-friendly use of the limited global resources should be the supreme maxim of a credible and productive economic system. Combating poverty, social and cultural compatibility, justice between the generations and safeguarding human dignity should be key criteria. Levels of production and consumption need to be controlled. Poor countries require special treatment making possible an increased consumption level for the poor.

Principles instead of Profits

More efficient national and international economic policies are necessary for reaching these goals. Such policies help realize the highest economic productivity measured by internationally recognized criteria. These criteria include:

· Democratic transparency and responsibility of governments, businesses and other organizations, supported by the public right of access to information and courts
· The “polluter pays principle”, supplemented by effective liability systems and assurance of just compensation for damages
· Fair cooperation, personal responsibility and differentiated accountability of different countries as principles of diplomatic relations and international negotiations
· Protection of biological, cultural and economic diversity and respect of human and non-human creatures
· Observance of human rights – especially the right to a healthy life in an intact environment, the right to peace and security and protection from discrimination on account of race, religion, ethnic membership or class. These rights must also be absolutely valid for indigenous people.
· Protection of high environmental-, social-, security-, health- and labor standards
· Justice within the generations. This implies both the redistribution of controls over natural resources (e.g. land) and the repayment of ecological damages.
· Subsidiarity in economic and political decisions – decision-making competence on the lowest possible level and
· The precautionary principle applied to technologies and political measures

The Precautionary Principle

Many advocates of modern economic policy- and praxis smile condescendingly at the precautionary principle. Nevertheless this principle is a core element of all strategies for future-friendliness.

Caution in economic policy is wise in a world where resources are limited and production processes are complex. The precautionary principle should help protect future generations from unsuspected or not completely demonstrable environmental- or health risks. This principle could enable people (together or in the participatory process) to make decisions about their personal readiness for risk in view of environmental and health dangers on the basis of the most correct and complete information and on the background of their own cultural and ethnic predilections.

Conventional “risk assessment” procedures cannot replace the precautionary principle. When sufficient information and data exist, political decisions about risks must still be made. A genuine democratic process is indispensable for these decisions.

Measuring Prosperity

We cannot develop any new and more effective economic model if our standards remain unchanged. The only standard that is presently applied, the gross domestic product, does not reflect at all our quality of life, social progress, combating poverty, human development or environmental quality. Vital social services including bringing up children, care of the elderly or housekeeping are not seen as economically important. A positive value is given to economic transactions connected with criminal acts, sickness or environmental pollution although they actually represent a deterioration of the general living conditions.

The way our prosperity is measured must be drastically changed to develop future-friendly societies. Our standards need to be differentiated. We must be able to measure economic activities correctly if we want to define how economic systems should be improved. Therefore a new standard for prosperity (a new prosperity model) is indispensable.

The Just Value of Labor

At present only paid work is reflected in our economic models. The market determines the value of our output or performance. The work of a bank executive is judged higher than a teacher. Unpaid work like bringing up children, care of the elderly and agricultural production for personal consumption – mainly performed by women – is ignored. The same fate comes to voluntary work in schools or charitable organizations.

These ignored contributions are basic for a well-functioning society and improve the quality of life of everyone at least as much as paid labor. Children are brought up and many other primary needs are satisfied in this “unofficial economy”. The dominant economic system does not only ignore this labor. This system also distorts the balance of many societies by forcing the production of export goods and the exploitation of natural resources instead of encouraging education, health care and social security systems.

Transportation costs must reflect the ecological truth

At the moment, transportation (long-distance transportation on ships, streets and in the air) is subsidized both directly and indirectly, mainly by ignoring the external costs of fuel consumption. Intensely polluting and nature-destroying production patterns are given priority over local production methods and local trade. Inclusion of the true social and ecological costs of transportation in the price of products would strongly regionalize streams of trade and protect the environment globally and locally.

Planning for the Future – Use of Resources

Resources are limited…

Many of our natural resources – renewable and non-renewable – are already greatly strained today. To name only a few examples: 1.2 billion hectares of agricultural land have been used so intensively in the last 45 years that the soil quality is no longer adequate for agricultural purposes. An average farmer cannot afford to restore this land. 13 of the 15 most important high seas fishing areas are over-fished. 56 million hectares of forests were destroyed worldwide between 1990 and 1995. The excessive use of fossil fuels leads to global changes in climate. The omnipresence of toxic chemicals and heavy metals has grave effects on human health. If all people consumed as much as the population of the North, we would need eight planets to satisfy our resource hunger in 2050.

Given such facts, reducing the exploitation of resources is clearly urgent. Economic growth urged by the dominant economic models collides with this goal. In the sense of the long-term assurance of human health and our environment, the use of resources may not exceed a sustainable level. To that end, consumption- and production patterns need to be radically changed. This requires effective and ambitious international agreements.

…”Under-consumption” is also a problem

The “over-consumption” that prevails in the North is only one side of the coin. A consumption level below human needs is the reality in many countries of the South. The rules of the World Trade Organization, the World Bank and the IMF promote the uncontrolled exploitation of resources for export purposes and commercialization of biological resources to keep alive the excessive consumption in the North. Environmental pollution on all continents is the consequence. Governments together must develop solutions that adequately solve these fundamental questions of exploitation of resources and access to resources.


Reducing use of resources and preventing conflicts

To a certain extent, the present trend to global market opening is nothing but a new phase of the ancient battle over natural resources. Inventing a system that fixes the rules of competition for resources for countries cannot be our goal. Rather we should concentrate our efforts on reducing resource consumption and making possible the just access to finite natural resources. Such a strategy that diminishes consumption especially in the North is much better suited to insuring peace and security worldwide than the neoliberal economic model.

Reducing resource conflicts

Reducing resource use and creating jobs

Although many businesses still argue that rapid resource exploitation and other environmentally destructive activities create jobs, nothing could be more false. Reduced use of material and energy consumption (in the course of a resource protection strategy) goes along with an intensified need for workers, creates jobs and advances the general quality of life.

For example, a future-friendly forestry creates more – long-term – jobs than simple “clear-cutting”. Energy efficiency and renewable energies are more labor intensive than extraction of coal or energy production from fossil fuels and at the same time are cheaper for the consumer. Skilled workers who are not needed at waste incineration plants or waste depots are necessary for recycling and reuse.

Including the output from the informal sector, for example bringing up children or housekeeping, is indispensable for identifying the true value of individual economic activities. Jobs in a newly created coal-mining area that produces coal for export no longer appear so attractive when the number of displaced farmers is included. These farmers previously grew food for their own consumption on the same land.

The right to limit resource consumption

Future-friendly patterns of consumption and production are core elements of an environmentally friendly and socially compatible society. Local and regional communities should have the right to limit the consumption and commercialization of their natural resources to satisfy local needs. The option to act obviously exists amid over-production. A right to limit resource consumption would help realize a just access to resources worldwide and reduce over-consumption. That right would mean that the export-oriented model of the economy and development could not be forced on any community.




Avoidance, Reuse and Recycling

Avoidance, reuse and recycling are absolutely necessary for reducing the use of natural resources in the North. The consistent realization of this material use hierarchy would greatly promote increased efficiency. Therefore governments should introduce regulative or economic instruments that encourage avoidance, reuse and recycling. Raw material taxes, exploitation quotas and packaging prohibitions are possible on national and international planes.

Sharing Resources - Combating Poverty and Injustice

Sufficiency Strategies and the Control of Demand

Recycling is a way to increased efficiency in resource consumption. However increased efficiency will not reach the goal of a future-friendly use of resources when the necessity of increased consumption of persons below the poverty line today is highlighted. An effective control of demand is necessary. For example, energy supply companies should become energy service providers. They should make available energy saving technologies like insulation instead of energy. The goal must be improving quality of life and simultaneously diminishing resource consumption. Strategies for realizing this goal are called sufficiency strategies [In its study “Future-Friendly Germany. A Contribution to a Global Sustainable Development, 1996, BUND emphasized the necessary connection of efficiency- and sufficiency strategies.]. Governments have the task of creating framing conditions for businesses so they can earn money in realizing the sufficiency strategies.

Human right to access resources and a healthy environment

“Every person has a right to a livelihood that guarantees health and well-being including food, clothing, housing, and medical care for himself and his family…” (Article 25 of the Universal Declaration of Human Rights of the United Nations, 1948).

Nevertheless the living standard of many people in poor countries has fallen without any financial or social compensation. Access to the resources of water, food, clothing and housing is often barred to them. This has very serious effects on women who are often responsible for preparation of food and other basic needs.

Sufficient access to resources and a healthy environment should be regarded as human rights in a future-friendly economy.

Reversing Redistribution

The current economic policy as forced on many countries of the South by the World Bank and the IMF leads to a redistribution from the poor to the rich. This policy intensifies poverty and injustice.

The gulf between the poor and rich increases more and more.
In 1960, the 20% of the world’s population that live in the richest countries had 30 times greater income than the poorest 20%. In 1997 the privileged 20% were 74-times richer than the poorest 20% (UNDP Human Development Report 1999). Whole groups of people are marginalized ever more intensely on account of their gender or other social distinctions. The demands for repayment of the debts of the “Third World” have led to a reverse “Robin Hood” effect transferring the prosperity of poor debtors to rich creditors.

Redistribution must be reversed if a global balance should be achieved and resources fairly distributed between countries, regions and people. Governments should be obligated to use all political measures for the goal of greater international justice on the basis of international standards and principles.

Ecological Liabilities and Debt Relief

Huge mountains of debt and repayment obligations lead government policy in developing countries to concentrate on production of export goods. Exports are indispensable today to amass the necessary foreign currency for servicing debts. The export-oriented development programs of the Bretton Woods institutions support this short-sighted and injurious strategy and create a vicious circle compounded out of an over-supply of goods on the world market, falling prices and increased export quantities from developing countries. In addition, developing countries are often forced by financial institutions to reduce state expenditures in social- and environmental areas so they can no longer pursue their own goals of future-friendliness.

As a result, rich importing countries have a cheap access to natural resources. In reality, these rich countries have accumulated ecological debts to the exporting countries that far exceed the debts of the developing countries ($355 billion).

The first step must be a debt cancellation. The possibility of investing intensively in their future-friendly development and creating future-friendly models of production and consumption should be given to developing countries. Without a debt relief and facilitation of a development in developing countries not oriented in export, a reduction of resource consumption in the North would be counter-productive. This would plunge countries of the South dependent on exports into poverty- and debt-spirals. However debt relief may in no case be coupled to an export-oriented policy as often practiced in current “debt remission programs”.