EUROPEAN PAPERS ON THE NEW WELFARE

From Limits to Growth to Limitless Growth

4. Extending Disciplinary Boundaries
One of the reasons Giarini’s writings have not gained wider recognition is because his vision is all-encompassing and, therefore, foreign to the thinking of traditional academic econo­mists. While others divide and subdivide economy into smaller specialised fields – finance, marketing, public policy, banking, central banking, employment, monetary policy and the like – this perspective constantly expands the boundaries of thought to encompass domains lying outside traditional economic thought. Apart from extending economy to encompass ecology and negative value, it expands the boundaries of economics in at least three other directions until it becomes co-terminus with society as a whole.

4.1 The Moving Line of Money
First is the emphasis on the non-monetarised sector comprising welfare-related activities which did not involve any monetary exchange. In Smith’s day, only a fraction of those activ­ities required to sustain human life involved money transactions. The majority of people lived or worked on farms producing their own food and clothing, building their own homes and either making or resorting to barter exchange to acquire other essential articles. The use of money was largely utilised for public expenditure, urban living, international trade and maintenance of standing armies. Today, both self-production and barter have largely been replaced by monetary transactions which contribute to growth of GDP but do not necessarily reflect a real enhancement in human welfare. In earlier decades very few people paid for drink­ing water. This raises concerns regarding the deteriorating quality of ordinary water today which has spurred the growth of the bottled water industry to $60 billion globally. But does that growth really reflect a $60 billion enhancement in human welfare?
Although passing largely unnoticed, the line between the monetarised and non-monetarised sectors is continuously shifting one way or the other. Due to the skyrocketing cost of medical care, doctors’ home-visits are almost a forgotten service, but the cost and inconvenience to patients of travelling to clinics and hospitals go unrecorded. Household work remains one of the largest domains in the non-monetarised sector. Fewer middle class families can afford housemaids, chauffeurs and cooks today. Many people fill their own gas tanks, wash their own cars and mow their own lawns, where previously they may have paid someone else to do it. An obvious example is the housewife who seeks employment and hires others to clean her home and cook for the family or ends up serving nutrition-poor fast food to her children, because she has no time to prepare healthy meals at home. These monetarised activities all contribute to an increase in GDP, yet in the process the health of her children, the cleanliness of the house, the harmony of her family and her own peace of mind may have deteriorated.
Monetarised and non-monetarised sectors are related by an ever-changing and evolv­ing interaction. Together they constitute a greater social and economic reality out of which monetarised economic potential emerges and from which it disappears. Economists tend to focus on the defined field of the monetarised sector and overlook the potential of the greater non-monetarised sector from which it emerges. They see what exists today, but do not consider the unrealised potential. The Internet provides the most dramatic example of the unlimited potential of the non-monetarised sector. Internet companies have found a way to monetarise the value of human attention. The mere fact that so many people visit and view a web page or website is now recognised to be of immense value, so much so that the market value of Facebook is estimated at about $100 billion at a time when its revenues are only about $4 billion.

5. The Evolution of Economy
Smith published The Wealth of Nations a year after James Watt perfected the improved steam engine which ushered in the first industrial revolution. The premises of modern economics and the conclusions of the Club of Rome’s report were both based on the 19th century concept of industrial economy. The crises of the 1970s were a clear message that these prem­ises were inadequate as a foundation for further social progress.
Even while the report was being written, society was in the process of rapid evolutionary changes that have led to a new model of knowledge-based service economy. This transition is characterised by an increasing shift from material resources and industrial capital to intellectual and scientific resources and human capital. The industrial worker was a proverbial cog in the wheel. The knowledge worker is a self-contained production unit, productive of new and improved ideas, processes, products and services. Human beings, not material resources, financial capital and technology, are the key to this radical transition. Based on this recognition, Peccei wrote in The Human Quality (1977), “It is only by developing adequately human quality and capacities all over the world that our material civilisation can be transformed and its immense potential put to good use. This is the human revolution, which is more urgent than anything else…”1
While the growing importance of the service sector has been evident through much of the 20th century, its profoundest implications remain largely unrecognised even today. Society strives now to accord human beings an equivalent or greater value than money and technolo­­gy, but that is at best a feeble halfway measure, which only places humanity on a par with what it creates. Development of human beings is still regarded as a means to an end, rather than an end in itself. In its early development, Giarini’s thought points to the far greater potential that is yet to be recognised.
Apart from the increasing importance of education, human and social capital formation, the dematerialisation of economy has had ecological implications, pointing to the possibil­ity that future economic growth could become far less demanding of scarce and vulnerable environment resources. Over the last half century, this has resulted in a dramatic reduction in energy consumption per unit of GDP in OECD countries; but these energy savings have been more than offset by the dramatic increase in energy consumption by industry in developing countries.
The dematerialisation of production by the service economy is complemented by an equally or more important dematerialisation of needs. The growing centrality of services results from the fact that once basic material requirements are met, the aspiration is re­­leased for the satisfaction of higher order, non-material needs – communication, information, education, healthcare, entertainment, recreation, and culture – which are not only far less demanding of material inputs but also far less limited in their growth potential. Food consumption is subject to limits; knowledge, human relationship and enjoyment are not. Thus, the growth in relative importance of the service economy represents a progressive shift from the pursuit of physical security to the quest for human security, welfare, well-being and unending development of our individual and collective human potential. Of even greater significance are two other implications of the modern service economy that have gone largely unrecognised.

5.1 Valuing Systems and Utilisation Time
Discovering the full significance of the transition to services is the main theme of his second report to the Club of Rome, The Limits to Certainty (1993), co-authored with Walter R. Stahel. The report sets forth the need for a new general theoretical framework for economics to reflect fundamental changes in the nature of economic activity. “That which in the 1970s was interpreted as a problem of limits to economic growth in general, increas­ingly appears to be the description of the end of the great cycle of the classical Industrial Revolution. The simulations by Jay Forrester and Dennis Meadows indicate precisely this, not the end of economic growth as such, but rather the end of a certain kind of economic growth, that was based on priority and above all on hardware and machines instead of on software and organisational systems, on tangible products rather than services of every type. Of course, an important part of economic activity will always depend on tools and hardware, just as today we need agricultural products. Now, however, within most traditional industrial and agricultural sectors, service functions predominate.”
The growing contribution of services to GDP and employment is well-known, but its impact on the problem of value is still poorly understood. A major component of the service sector consists of large delivery systems, such as those related to telecommunications, transport, research, education, healthcare, banking, and research. The cost of delivering specific services through these huge systems is difficult to measure, because most of that cost consists of fixed overheads. The marginal cost of producing one more book, watch or computer can easily be computed, but not the cost of delivering an extra hour of high speed internet connection time, round-the-clock access to health maintenance facilities, or research to discover a cure for cancer. In the case of the first two, the cost of the service is largely dependent on overall usage of the system, rather than on individual transactions. In the case of research, costs might be accurately assessed or fixed in advance, but the outcome of the research and its real value cannot be known until after the fact, sometimes years or even decades after it is undertaken. The cost of a college education is even more problematic, since neither the individual delivery cost nor the value of the service to the individual customer can be easily measured.
In addition, valuing both products and services in today’s service economy presents a more fundamental challenge – the problem of utilisation time. Unlike the traditional factory that produces so many loaves of bread or reams of paper every day, ‘cost of production’ for many products today commences years before the product enters the production line or ever leaves the factory. It includes costs such as materials research, product development, and process engineering. Furthermore, the actual cost of the product may not be accurate­­ly known for months or years after the actual date of sale, since it may include additional costs such as after sales service, warranties, product liability, recycling and waste disposal. The $25 billion mortgage settlement imposed by the US government on American banks in February 2012 is an example of a cost that could never have been anticipated at the time the mortgages were originally sold. Under these circumstances, assessment of the true cost and true value of any economic activity becomes far more difficult to assess.

Aurelio Peccei, The Human Quality (Oxford: Pergamon Press, 1977).


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