Publications / Annual E. F. Schumacher Lecture

Development Beyond Economism: Local Paths to Sustainable Development

Introduction by Nancy Jack Todd

Futurist, development-policy analyst, and much sought-after consultant, Hazel Henderson is a major player in the global arena. Like her late mentor and friend E. F. Schumacher, she balances an extraordinary intelligence with an equal measure of down-to-earth common sense, which she brings to bear with great effectiveness on the present critical state of human affairs.

Henderson has been known to refer irreverently to the dominant economic paradigm—economism—as a form of brain damage! Delineating the practices by which economism impoverishes regional economies, she provides better criteria, such as new social and economic indicators of progress, by which to judge the health of an economic system. The indicators she advocates provide the feedback we need to guide structural changes in policy. Henderson sees us entering a new age of interdependence in which cooperation with rising industrial countries will lead to sustainable development on a global scale.

She is the author of Creating Alternative Futures (1978) and Politics of the Solar Age (1981).

The effects of the forces of industrialism and economism, foretold so well by E. F. Schumacher, have led to a revolution of unprecedented scope. Technologies and human activities now bring about major changes in the global atmosphere and ozone layer, create deserts, pollute ground water and oceans, and accumulate garbage in space. Industrialism’s powerful promise of development, modernization, and economic growth has fueled rising expectations worldwide; however, today’s guiding philosophy of macro-economic management has locked most governments and policy analysts into a narrow range of options generated by the conflict between socialist and capitalist models. These sterile “left-right” debates about whether to nationalize or privatize and whether to regulate or deregulate are based on outdated concepts of national sovereignty, the immobility of capital, and material definitions of commodities that, ignoring information and service flows, focus on trade (now swamped by financial flows) and overaggregation of statistical data that exclude nonmoney sectors such as social costs and social benefits.

Meanwhile, seven globalization processes are driving the restructuring occurring in all countries: the globalization of 1) technology and production; 2) employment, work, and migration; 3) trade, finance, debt, and information; 4) the arms race and militarization; 5) pollution and resource depletion; 6) consumption patterns and the emergence of a “global culture”; and 7) the multiple restructuring within and between countries driven by all the foregoing. These processes are circular, interactive, accelerating, and irreversible. A new dialogue to redefine “development” is inevitable, and thanks to global mass communications this general debate between countries and between different cultures and academic disciplines can hasten social learning worldwide. Indeed, some countries are redefining their goals by enhancing problem-solving capabilities and accelerating learning1  (Figure 1)


The Failure of Economism

Economic reform efforts can be viewed as attempts to clarify the basic values and rules underlying all economies, exemplified by perestroika in the Soviet Union, the unplanned “hollowing” of the U.S. economy, the consolidation of the European Community, and the shift toward “democracy” in Eastern Europe, the Philippines, and Korea, as well as the struggle to end apartheid in South Africa. As the two superpowers further realign out of economic necessity, the rest of the world is breaking out of the ideological prison of the Cold War, which has crippled the United Nations and still preempts massive resources that must be released for true development (Figure 2).


As the new game of Mutual Development emerges, it is already clear that the winner of the Cold War was Japan. With 25 percent of the world’s capital, Japan’s role as a fulcrum for the shift to the new worldgame is crucial, and many globally minded and influential Japanese politicians, scientists, and business leaders are stressing ever more the transfer of yen surpluses to development projects in the South.2 Japan’s growing internationalism and its key fulcrum role emphasize the importance of redefining “development” in an age of interdependence. “Developing countries” (a misnomer, because all countries are developing) are reassessing their own plans, which have been dashed by crushing debt service and the politically impossible “adjustment” demands of the International Monetary Fund. This new realism is now endorsed by the United States in the Bush Administration’s Brady Plan, which moves beyond the Baker Plan by accepting the necessity of actual write-offs, as U.S. banks have been doing for some time and as Canada has proposed doing by forgiving debts of the most-pressed African countries. Secondary markets for “country junk bonds” are growing.

Many developing countries almost gave up on the North-South dialogue of the past decade when their proposals for a new international order were consistently ignored. The South Commission, co-chaired by Julius Nyerere, former president of Tanzania, and President Carlos Andres Peres of Venezuela, charted a new course at its meeting in Kuala Lumpur in 1987. The Commission resolved to redefine “sustainable, equitable, people-centered development” without the help of traditional, Eurocentric industrial development theorists.3 The term “sustainable development” has gained wide acceptance since it was advocated in Our Common Future (1987) by the World Commission on Environment and Development, chaired by Dr. Gro Harlem Brundtlandt of Norway. Much imaginative work to operationalize these new concepts of development is underway, such as that in Venezuela and Costa Rica as well as the new Human Development Index of the United Nations Development Program. These new indicators prove that per-capita-averaged income and current national accounts conventions are by no means the best indicators of overall welfare or progress. Many countries moving away from central planning, however, still follow in the spirit of Karl Marx’s original coining of the word “socialism”—that is, a more inclusive, systemic view beyond economics.

Indeed, a broader view of development is essential because planet Earth is now providing warning signals from which all humans must learn and to which they must react. The breakdown of the ozone layer and similar large-scale effects, as well as the seven globalization processes mentioned earlier, are teaching us the overriding need for cooperation: our planet is a vast programmed learning environment, with positive and negative feedbacks allowing basic understanding of its functioning. Out of this context comes the criterion of sustainability—that is, providing equitably for the needs of the present generation without jeopardizing the needs of future generations. Thus, the redefinition of development must include more than the avoidance of the boom-bust cycles of market-dominated capitalistic economies and the rigidities of Soviet, Stalinist-style central planning; it must also include measures to curb the excessive pollution and depletion of the Earth’s resources that both these development models cause. In the United States and other mature industrial societies the excesses of mass consumption have brought major problems, including eroding ethical standards and widespread, increasing levels of drug abuse, crime, illiteracy, homelessness, hunger, and splintered families and communities as well as an increasing gap between rich and swelling poor populations.4 Short-term industrial values are clearly at a crisis point (Figure 3).


The basic problem is that industrialism’s ideology, crystallized in economic theory, is too narrow a framework for policy formation and the management of the total productivity of societies. This economism is an inappropriate basis for sustainable, equitable development. An expanded framework is needed, based on broader interdisciplinary theory, thermodynamics, physics, engineering, ecology, and the life sciences as well as advanced approaches to human motivation, psychology, and anthropology (Figure 4). Similarly, more dynamic models, such as those emerging from chaos theory, are needed to capture the rapid changes and restructuring now occurring.5


Once we transcend the box of economism and its false universalism, we can see that many intractable debates between economists, such as those about planning versus markets and competition versus cooperation, can be overcome. The key issue is less whether countries have market-system or centrally planned economies, as many economists still believe, than it is the extent to which they incorporate at every decision level the necessary feedback loops from those people and resource systems affected by the original decisions. There are two major types of the latter (cybernetic) systems: homeostatic (governed by predominantly negative feedback loops) and morphogenetic (governed primarily by positive feedback loops), as shown in Figure 5. Of course, prices are an ubiquitous and useful element of feedback systems. Unfortunately, as technology becomes more complex and as social and technological interlinkages increase, managerial scale and scope must also increase in order to control this complexity. Each order of magnitude of technological and managerial scale in the market sector calls forth an equivalent order of magnitude of government regulation, particularly in democracies where citizens demand it politically.


From a general systems theory perspective, all economic systems are sets of rules, devised to fit the specific culture, values, and goals of each society. Thus, even so-called free-market or laissez-faire economies are designed by humans and legislated into existence, while prices and wages reflect the values of each society and its state of knowledge of its real situation in the physical world. In fact, the notion of “objectively set, free-market prices” is revealed as a myth (albeit a politically useful one), because all markets are in one way or another created by a human rather than “invisible” hand. Resource allocation methods—whether planning, price regulation, rationing, barter, or reciprocity—are only as good as the state of human knowledge.6

This decision-theory view of economic systems as “games” with human rules, as management systems employing many feedbacks and strategies, allows an overview of planning, market, and other tools of policy, and it is clear that competition and cooperation are equally useful strategies that must be continually balanced in all societies. A former economist, Herbert Simon, who won a Nobel Memorial Prize in economics, noted in his acceptance speech that he no longer used the economic method but rather decision theory and other systemic models.7 Systems scientist Stafford Beer has been designing such models for many years and is applying them through a United Nations grant in Uruguay.

Ecological and natural-resource decisions as well as prices are only as good as human scientific knowledge and must be based on sound science in systematic, dynamic models. Many systems theorists, including Fritjof Capra, Leonard Duhl, M.D., and the World Health Organization itself, have proposed substituting health as a basic criterion for development—that is, healthy land and water, healthy cities, healthy public policy—all with healthy people as the goal.8 Introducing a new set of “green” sin taxes on pollution, depletion, obsolescence, and waste is increasingly popular in Europe, where eighty-five of these kinds of fees are levied. Natural resources can be conserved by correcting prices to include social costs incurred. Full-cost pricing will provide a more accurate market-allocation method, albeit that additional accounting for environmental and social cost will produce an “inflation effect” because most countries have been overstating productivity for decades9 (Figure 6).


New Indicators and Methods

Social indicators have been a theme of discussion in many mature industrial societies for years, but their application has been thwarted by bureaucratic resistance, by intellectual vested interests in methods, textbooks, etc., and by cultural biases (for example, against accounting for the work of women in parenting, housekeeping, and subsistence agriculture). No one “correct” method will emerge, because multiple models and indicators will be closely fitted to local situations and the different “cultural DNA” of diverse societies. It is clear that guiding societies by late twentieth century overaggregated indices is like trying to fly a Boeing 747 with a single oil pressure gauge! The social-indicators debate is about disaggregation, revealing overlooked detail both locally and sectorally and adding a whole row of additional gauges to societies’ “instrument panels,” so as to plug feedback into appropriate decision levels with more precision and timeliness. For example, an in-house audit evaluated one thousand World Bank projects and found that none of them had met their projected goals, not even in traditional economic terms. Thus, no easy formulas are available for addressing the new needs of developing countries for culturally sensitive, egalitarian, and sustainable development. The first order of business for development officers is to be able to “decode” the cultural DNA of a recipient country and determine what values and goals they are optimizing, which may not be goals they are qualified to assist toward.10

Traditional indicators such as Gross National Product (GNP) and Gross Domestic Product (GDP) were actually developed for military mobilization purposes in Britain and the United States. Their materialistic view of progress cannot guide humanity beyond consumerism toward moral growth and sustainable development. I have traced the evolution of economic indicators and reviewed the many post-economic indicators and policy tools now available to decision-makers.11 The crucial role of the informal economy and the unpaid productive work of subsistence agriculture are the subject of a small but growing body of literature. In addition, there is the inability of national accounts to distinguish between “goods” and “bads” (or “wealth” and “illth”), because liquor, tobacco, auto accidents, cleaning up pollution, and the multibillion dollar “stress industry” are all included as progress. It might well be that in the United States these growing social and environmental costs as well as the increasing monetarization of cooking, child care, and other formerly unpaid work are the main growth sectors of GNP. Yet efforts to add “sin” taxes to harmful products are fiercely resisted by industry lobbies.

Whereas national accounts and indicators are important, it is local indicators that provide the balance to correct overaggregation at the national level. Local indicators and methods now being tried in the United States are useful; key experiments during the 1980s have been in response to the economic and social problems experienced by many localities as a result of the budget priorities and laissez-faire policies of the Reagan Administration. The local search for alternative models in many states has stemmed partly from the failure of national policies based on overaggregated statistical illusions, including GNP, inflation, unemployment, interest rates, and all the other paraphernalia of the Bush Administration’s macro-economic management, which is now lying in ruins. Due to its failure at the local levels, where conditions vary widely across the United States, macro-economic management has become almost as discredited here as the centralized Stalinist policies have in the U.S.S.R. Both became bureaucratic, out of touch with regional needs, and—in the United States—relied more on “single bullet” monetary and fiscal policies with very different lead and lag times, which were often in conflict with each other. As the seven great globalizations took hold during the 1980s, it became clear that domestic economic policies were a thing of the past, for such policies were swamped each day by the billions of footloose “hot” dollars sloshing around the planet seeking interest-rate advantage. No one knows how to measure these global monetary aggregates, which also began swamping bilateral trade statistics, obscuring policy options, and leading to faulty trade legislation and unnecessary conflict with trading partners.

In all this national confusion, with rising domestic deficits and the rapid shift of the United States from the world’s largest creditor nation to the world’s largest debtor nation, states and localities were left to fend for themselves. Many of them, suffering severe economic disruption, unemployment, deficits, crime, and other social and environmental problems, turned to experiments and activist policies in spite of their ideological commitments to the free market and nonintervention. Formerly, they had relied on accounting firms to assist in trying to reach their economic development goals. This economic approach offered assessments of a state’s business climate in such terms as what conditions a firm’s corporate clients were looking for in plant location. Predictably, states were told that a good business climate was one of low taxes, tax credits, cheap land, and cheap labor—what is sometimes called “the plantation model,” where the state’s people and resources are basically offered on the auction block to lure outside investors. This has always been a risky game because in the United States approximately twenty-five thousand localities are offering these lures, while only some five hundred location or relocation decisions are made by major companies each year. Such a strategy in the new global economy puts the state in direct competition with countries with much lower wages and resources, countries that in addition offer tax holidays. Indeed, most multinational corporations have financial models that can tell them, on a daily basis, which nation is foolish enough to be offering them an annual 35 percent return on their investment. State officials can never win at such games employing global electronic funds-transfer, where no allegiance exists to any locality (Figure 7).


Another approach in the desperate search for local development is the use of the Quality of Life indicators developed by such firms as the Midwest Research Institute of Kansas City, which rates various cities for their livability and attractiveness to top managers, their schools, research facilities, cultural opportunities, climate, etc., as well as the more traditional factors such as few unions, availability of capital and trained workers, friendly politicians, and weak environmental laws. Another new approach is that of Ameritrust/SRI (formerly called the Stanford Research Institute) of Menlo Park, California. Its revised Indicators of Economic Capacity (1986) is based on a somewhat arbitrary regional grouping of states, one still geared toward traditional economic growth; however, these indicators move away from the plantation model and identify “quality inputs” such as an educated work force, level of state investment, and commitment to academic excellence, research facilities, quality of faculty at universities, numbers of Ph.D.s graduated, levels of state investment in infrastructure, civic services, and other quality-of-life factors as well as capital availability.

Capital availability is the crux and symptom of the globalization process and the largely unanticipated restructuring of the U.S. economy. The capital markets have been deregulated in the United States, and capital has become highly centralized as a result of this and of the global search for advantageous interest rates and currency differentials in the now tightly interlinked financial markets of the world. This situation leaves most localities short of the liquidity they need as their locally generated money is “vacuumed out” of their communities by branches of the major money-center banks. The chronic lack of liquidity for local circulation and trading as well as investment in local enterprises, dependency on outside investment, and other factors are the basic cause of their vulnerability. Not surprisingly, new forms of computer-assisted barter, skills exchanges, and limited-purpose local currencies are in use in thousands of U.S. and Canadian localities.12 Meanwhile, capital is available only to those large-scale, successful enterprises that localities are forced to try to lure in head-on competition with other cities and states as well as with other countries.

At the same time, on Wall Street billions of dollars of hot, hungry money competes fiercely for fewer and fewer opportunities in higher and higher technology start-ups in the hopes of at least one big winner. No enterprise that does not offer at least 30 percent annual returns on investment is even considered, while millions of modest, useful, small-scale enterprises meeting local and regional market needs are too short of capital to expand, and many are forced into bankruptcy when they experience a temporary cash-flow crunch. Thus, many local needs for locally produced goods and services that would build a stable local economy remain unmet, and many people must drive long distances to shop for vital goods and services at regional outlets of large multinational companies. In this way local initiative is choked off, much as it is in a centrally planned economy. This kind of absurdity occurs when market power is allowed to dominate instead of playing a balanced role in resource allocation. Of course, traditional economics recognizes this in monopoly theories, and the U.S. government is supposed to regulate such monopolies. However, political power, campaign contributions, lobbyists, advertising, and the commissioning of research allow many of these monopolistic corporations to control the mass media, large areas of production, and weapons manufacture, thereby capturing enormous government contracts and influencing policies.

Many U.S. localities are waking up to the impossibility of playing the old plantation-model game of economic development, for it leaves them wide open to the new world-trade roller coaster, vulnerable to sudden investment shifts, currency swings, bouncing interest rates, and lower wage competition while their well-laid local plans are disrupted as financial markets open in cities around the world. In Florida a 1987 report, Florida Sunrise, shifts emphasis from the plantation model to one in which education and investments in its citizens are seen as new paths to development.

Thus, the old growth view of economic development has hit these kinds of new snags, and most states are now developing growth management plans and development impact fees that assess construction and development companies with part of the infrastructure costs their projects will incur. Many large companies that lose out in these new struggles with local governments or refuse to pay impact fees simply move over the Mexican border and set up the now-familiar maquiladoro plants in politically weak Mexican border towns. These towns, too, are becoming overburdened with influxes of migrants looking for jobs, and their tax bases are insufficient to provide infrastructure and basic services. Not surprisingly, many state and city officials and politicians are now learning that development in the world of the late twentieth century requires a dual approach. The first is to learn to play a much smarter role in the global “fast lane” and find export strategies not easily copied by others—that is, genuine niches of true comparative (not competitive) advantage, partly based on Adam Smith’s and Ricardo’s concepts. The second is to develop a home-grown economy to provide basic security and meet local needs with local resources in smaller-scale enterprises. One can see common elements in this approach in the United States’s and China’s contract system, now spreading to the Soviet Union.13

As the “luring outside investors” approach to development becomes more risky in today’s context—when a whole generation of a technology, from innovation to obsolescence, can have a life cycle of three years or less—more interest is focusing on the “home-grown economy” approach. This basic strategy offers a minimal safety net until the world trade roller coaster is tamed by new global agreements, such as those to which the group of seven leading industrial nations known as the G-7 is already moving (in spite of their free-market preferences). The decline in U.S. competitiveness is forcing new thinking. The commonality in the new approaches in the United States, one of the world’s most mature industrial societies with one of the highest per-capita-averaged income and GNP levels, is the now widely shared insight that sustainable development must begin locally from the grass roots, building on basic agriculture rather than the failed trickle-down model of industrialism.14 This industrial model saw rural communities and farmers as “backward” people to be mobilized into industrial production. But, as has been discovered in most countries, there are few easy shortcuts to sustainable development, which involves steady efforts and prevention of harmful unanticipated consequences often very expensive to remedy or even irreversible.

The U.S. Office of Technology Assessment (OTA), on whose Advisory Council I served during its start-up years from 1974 until 1980, released a study in June 1988 on grass-roots development in Africa that surveys efforts to enable the poor to participate in the process of development. OTA assessed nineteen countries in which such projects had been funded by a new agency set up by the U.S. Congress, the African Development Foundation (ADF). Between 1984 and 1987 ADF awarded grants ranging from $700 to $250,000 to 114 projects, two-thirds of which were agricultural activities such as providing potable water, raising vegetable crops for local consumption, improving animal health, renting tractors, helping set up cooperatives, and the like. OTA’s study confirmed the validity of ADF’s assumptions concerning local participation as key to healthier forms of social and sustainable development.15 The World Bank is examining other grass-roots development models such as the Grameen Bank in Bangladesh and Women’s World Banking, a network headquartered in New York and Amsterdam with local affiliates in fifty-five countries.

A now widely perceived key to sustainable development seems to involve what the World Bank refers to as “capillary lending,” where channels are sought to pass through overly large sums of money to many village organizations, bypassing government and political influences in capital cities. It is questionable, however, whether the World Bank can recycle recent Japanese surpluses effectively.

All these new grass-roots lending policies—in mature industrial societies such as the United States, Canada, and many European countries as well as in developing countries—again prove that old “left” and “right” ideologies associated with economic models are obsolete. For example, the World Bank is pressured from both left and right to stop its massive, inappropriate projects, which are geared to host-country governments and infrastructures and which have led to some $30 billion of overinvestment in centralized energy projects on a worldwide basis. Conservatives demand a grassroots private-sector approach in the name of the free market, while liberals want less environmental damage and less maldistribution of income. Yet the blindest spot is hardly addressed: the “informal economy” of unpaid productive work that remains uncounted in any national accounting models. These informal sectors still provide the basic safety nets in all societies, even those in the United States, Canada, and Western Europe. Sociologists (rather than economists) collect this data, using methods of counting productive hours worked, whether paid or unpaid. Most of these studies in France, Sweden, Canada, and the United Kingdom show that approximately 50 percent of all productive work is unpaid,16 while other studies show that fully 80 percent of all the world’s capital formation and investment is not monetarized,17a fact that millions of subsistence farmers, rural entrepreneurs, and most of the world’s women know only too well. Even industrial value systems are now in conflict.

Accounting for unpaid production is a way to address price inflation and pinpoint specific ways to keep prices in line with true value. A good example of the problem of per-capita-averaged income statistics based on monetarized production alone is evident in Japan. The British journal The Economist noted the problem in its June 11, 1988, issue under the headline “Feeling Poor in Japan.” The article pointed out that the Japanese per-capita income, GNP-averaged, is the equivalent of $19,200 per year (ahead of the U.S.’s $18,200), but when the Organization for Economic Cooperation and Development worked out what the money actually buys in each country—that is, its purchasing-power parity—Japan looked poorer. Each Japanese had only $13,100 compared with the $18,200 for each American. The difference, of course, involves all of the various quality-of-life indicators.

Although purchasing-power parities are a very important new social indicator, they still do not get at the full range of social costs and benefits in each country. In Japan, The Economist pointed out, extra consumer goodies are consumed in ever more unpleasant surroundings; even New Yorkers have ten times as much green space per capita. Japanese life expectancy is in the eighties, but homes are prohibitively expensive due to exorbitant land prices, and standard commutes to work in cities are over an hour each way. In Britain real purchasing-power parity is higher than nominal income, as it is in Italy, whereas in the United States real purchasing power has remained flat for over a decade while nominal wages have increased. One of the key tasks is to examine the unpaid informal sectors and, where necessary, create barter systems locally so that real welfare may be increased without increasing wages and inflation. The interchangeability of money and information is a key to building local “information societies” based on barter and skills-exchanging networks in the same way that barter systems are employed when countries wishing to trade with each other do not have foreign exchange for this purpose as, for example, the barter trade between China and the Soviet Union and the 25 percent of all world trade now conducted in barter or countertrade systems. Similarly, the Southern Hemisphere countries could set up highly sophisticated computerized countertrading networks to at last create multiple South-South trade systems, by-passing the current financial and trade channels.

The pressing need to overhaul national accounting as currently defined by the United Nations Systems of National Accounts (UNSNA) is underlined by Chilean “barefoot economist” Manfred Max Neef, winner of the Alternative Nobel Prize in 1983, who notes that “nearly half of the world’s population and over half the inhabitants of the Third World are statistically invisible in economic terms.” Hernando de Soto, in The Other Path (1989) documents the extent of Peru’s informal sector, which accounts for 38.9 percent of that country’s GDP. In If Women Counted (1989) Marilyn Waring, a New Zealand legislator, dissects the UNSNA statistics to show how they confirm women’s domination by men in most countries. President Peres of Venezuela offers a new paradigm for development indexes based on his concept of “integral development” and deals fundamentally with quality of life rather than quantities of goods and services produced.18 Peres’s formula includes: 1) satisfaction of basic needs and the need to treat humans as indivisible beings; 2) self-reliance where possible; 3) sustainability defined as equitable distribution within inbuilt environmental standards. New kinds of indicators now under widespread discussion are shown in Figure 8.


A comprehensive review of existing economic indicators and their reformulation is under way in the United Kingdom by Victor Anderson.19 Research in the Netherlands is proceeding along similar lines—based on the work of Roefie Heuting, Wil Albeda, and others—and includes accounting for natural-resource stocks and the nonmonetarized work in the informal sector. Many researchers in Europe—including Britain’s Gershuny, Robertson, and Shankland, Sweden’s Inglestam and Ackerman, Italy’s Giarini, Canada’s Dyson and Nicholls, and Germany’s Huber—have studied the nonmonetarized informal sectors of production, but as of 1989 the results are not included in national accounting in any integral way. Italy’s Orio Giarini, author of Dialogue on Wealth and Welfare and The Emerging Service Economy, believes it will be necessary to incorporate the nonmonetarized sectors in order to understand the postindustrial service economies now emerging in Europe and North America. James Robertson reaches the same conclusion and has coined the term “ownwork” for the increasing number of part-time or self-employed autonomous workers in Britain and North America. Robertson and Giarini agree that this type of work must be accorded much higher status and part-time work must gain more prestige. They also agree that the encouragement of these new services sectors and their expansion will complement the formal, monetarized sectors. These views accord with my own work in The Politics of the Solar Age (1981, 1988) and that of Scott Burns in The Household Economy (1986).

As industrial societies move further into this “services and amenities” view, beyond production per se, emphasis also shifts from obsolescence/innovation cycles to durability and overall optimization. An underlying problem with all national-income accounting is the focus on flows rather than stocks, as emphasized in what is still the fundamental Western book on overhauling economic models, The Entropy Law and the Economic Process by Romanian scientist Nicholas Georgescu-Roegen (1971). Costa Rica already portrays this wider, more systemic view, which augurs well for overall performance and efficiency there. The China 2000 studies offer a model for other countries—including the United States, where similar studies such as the Global 2000 Report to President Carter have been ignored. Today the new Solvency School, led by Paul Kennedy, author of The Rise and Fall of the Great Powers (1988), and including James Chace, Mancur Olsen, David Calleo, and George Kennan, has gained widespread credibility.

The U.S. citizenry is waking up at last to the reality of the relative decline of the United States in a new multipolar world of vigorous new trading partners. The importance of the battle over indicators can be seen as essentially political, and the more suspect and meaningless conventional economic indicators of progress become, the more politicians must resort to polls of public opinion (Figure 9).


Savoring Cultural Diversity

A key political task in the United States is to cast its relative decline in positive terms, not to parrot the shallow claims of some commentators that the U.S. has “won” the Cold War and capitalism has been vindicated but rather to outline the vision of a safer, multipolar world that is now poised to enter a new age of interdependence, one in which global cooperation with all our rising industrial partners and the developing countries of the South leads to mutual sustainable development. As Soviets and Americans continue to discuss at many levels the newer definitions of security in economic, social, and environmental terms, the U.S. debate can adjust to the new global realities, particularly if new social indicators of progress are set up. Two-thirds of Americans agree with the Solvency School that the United States has become weaker compared to other countries, and 45 to 50 percent believe that America is “slipping dangerously.”20 The Solvency School, while correctly pointing out the mutual economic exhaustion of the superpowers, overlooks the more fundamental set of stresses that their rivalry places on human communities—because, of course, no indicators of these factors are available. When indicators provide scientific, timely feedback on a full range of variables within broader and global parameters, they enable nations to steer with instrument panels of sufficient accuracy and sensitivity to continually course-correct on their paths to sustainable development. Clearly, most of the data are already available—on education, health, literacy, life expectancy, infant mortality, shelter, and water and air quality—to complement per capita income averages. Categories still needing work are human rights and political participation; much data on these subjects are available from Amnesty International and other human rights organizations. More inaccessible but also available are “shadow prices,” equivalents for unpaid services and production and for barter and countertrade as well as for much of the productive work of normal systems.

The now widespread interest in global sustainable-development indicators has produced much debate in academic circles, such as that found in two pieces in Environmental Management, “The 1987 Forum on Global Sustainability: Toward Definition” (Vol. 11, No. 6) and “The 1988 Forum on Global Sustainability: Toward Measurement” (Vol. 12, No. 2). The International Institute for Applied Systems Analysis in Austria has produced good work in this area: for example, R. E. Munn’s “Environmental Prospects for the Next Century: Implications for Long-Term Policy and Research Strategies (in Technological Forecasting and Social Change 33 [1988]),” which reviews nonlinear, interdisciplinary models for global change that are adaptive and cross-cultural. Worldwatch’s State of the World Report for 1988 assesses capital investments required as a “down payment” on sustainability in six areas: 1) protecting topsoil and cropland; 2) reforesting the earth; 3) slowing population growth; 4) raising energy efficiency; 5) developing renewable energy; and 6) retiring Third World debt. The report then sets out two alternative global security budgets: the first continues the projected $900 billion spent annually on military security; the second defines global security in terms of sustainable development, with the military budget component falling each year from $845 billion in 1990 to $751 billion in the year 2000.

The economic exhaustion of the U.S. and the U.S.S.R. will continue to be the major factor in the development of these new “common security” definitions, but tremendous political activity on the part of the global citizens of every nation will also be needed to force these priorities onto politicians and leaders in business, academia, unions, and other social groups. The more we have improved social and economic indicators to provide better feedback on our current course, the sooner political will can be mustered for the necessary shift in policies. We particularly need to know the social costs of our current course, from the approximately $30 billion the United States will have to spend to clean up toxic dumps to the $60 billion per year in medical and absenteeism costs in the U.S. caused by smoking. This information is available, but few governments pay to have it collated and presented the way it is by Peter Draper (in “Economic Conventions: Health Versus Wealth,” Royal Society of Health Journal [U. K., 1977]), who makes it possible to relate which kinds of consumption lead to which kinds of disease—for example, linking sugared cereals to tooth decay—so that the social costs could be charged to manufacturers.21

In the last analysis a fundamental understanding of the role of money itself must be propagated. Money is information used to track transactions and to keep score between organizations and individuals—it is not a commodity in itself. The global financial system today, which has reduced money to a series of blips on thousands of computer trading screens, has now made it possible to see that money and information are equivalent and interchangeable. At a time when such money-symbol systems are used to dominate human affairs, as is the case with Third World debts, these new insights are producing demands for reform. Similarly, overusing the price system to accomplish social policy has become a bad habit in the United States, whose “free market” economy is actually a crazy quilt of administered prices, tax credits, subsidies, and incentives—all managed by the narrow policy tools of fiscal and monetary string-pulling while international economic relationships are giving way to crude, bouncing-dollar policies and interest rates that feed global instabilities. The need for reform of monetary policies as well as of the role of central banks in issuing money and credit is growing urgent in the West.

In the emerging age of interdependence the new global, systemic view is allowing serious questioning of traditional disciplines, including economics, and of the proper role of money itself in relation to tangible wealth and human labor, skills, and knowledge. The South Commission, at its meeting in Caracas in August 1989, co-hosted by Venezuelan President Peres, convened experts on national accounts and social indicators from five continents and the United Nations. Peres presented the Commission’s report, Toward a New Way to Measure Development, at the Belgrade meeting of the Non-Aligned Nations in September 1989, at which time fifteen countries formed a South Economic Summit.

All development paths are now interlinked and interactive via communication networks; this will equalize technological means and move the world trade system to one of less “hardware” and more “software” as knowledge diffuses ever more rapidly and widely. Every country will know how to apply basic technologies to its own domestically manufactured goods, and multinational companies will have fewer opportunities to recapture research and development investments. For example, when IBM introduces a new computer line, clones produced by others appear swiftly on the world market. I have termed this “the bursting seed-pod” model of world trade—that is, when mature industrial companies and countries release their knowledge, they “scatter” it in spite of patents, because information flows and is not scarce in the same way as are goods but can be shared in a win-win game. Enormous efficiencies can thus be gained and shared, with huge savings in transportation and distribution. As each country is forced to think harder about its true niche, it will seek creative advantage and will become unique in its exports and less subject to competition. An example is the Netherlands, whose export of dike technology to keep out sea water has no competitors. Each country’s unique gifts can be offered to other countries, and all can savor the growing diversity of the human family, just as today we savor one another’s food, art, music, and culture. 



Since Hazel Henderson delivered this lecture in 1989, she has also authored several more books, including Paradigms in Progress: Life Beyond Economics (1991), in which excerpts from this lecture appear.



  1.  H. Henderson, “Riding the Tiger of Change,” Futures Research Quarterly, Vol. 2, #1 (Spring 1986).
  2.  See, for example, Z. Sardar, “Saving the World Japanese Style,” Inquiry (July 1987), pp. 9-13.
  3.  “Objective and Terms of Reference of the South Commission,” official document (Kuala Lumpur, March 3, 1987).
  4.  See, for example, H. Henderson, Creating Alternative Futures (New York: Putnam, 1978).
  5.  H. Henderson, “The Limits of Traditional Economics,” Financial Analysts Journal (May-June, 1973).
  6.  H. Henderson, “Economists versus Ecologists,” Harvard Business Review, Vol . 51, #4 (July-August 1973).
  7.  Herbert Simon, “Rationality as a Process and Product of Thought,” Lecture to the American Economics Association, 1978.
  8.  See, for example, Leonard Duhl, M.D., and Trevor Hancock, M.D., “A Guide to Assessing Healthy Cities,” for the World Health Organization, Feb. 1988.
  9.  H. Henderson, Chapter 10: “Dissecting the Declining Productivity Flap,” in The Politics of the Solar Age (New York: Doubleday, 1981), pp. 286-87 (and pp. 104-05 for a critique of Edward Denison’s studies on productivity for Brookings Institute, 1978); also Indianapolis:Knowledge Systems, Inc., 1988.
  10.  Op. cit., Chapter 13: “Thinking Globally Acting Locally: Politics and Ethics for the Solar Age,” pp. 355-405.
  11.  H. Henderson, “Post-Economic Policies for Post-Industrial Societies, Revision, Vol. 7, #2 (Winter 1984/Spring 1985).
  12.  For example, the Local Exchange Trading System (LETS) developed in Courtenay, B.C., Canada by Michael Linton’s company, Landsman, Inc.
  13.  H. Henderson, “China: Key Player in a New World Game,” Futures Research Quarterly (Fall 1987).
  14.  See, for example, Goren Hyden, Beyond Ujaama in Tanzania (Berkeley: Univ. of Calif. Press, 1980).
  15.  Office of Technology Assessment, Grassroots Development (Washington, DC: U.S. Government Printing Office, 1988).
  16.  See, for example, Graeme Shankland, Wonted Work: A Guide to the Informal Economy (New York: Bootstrap Press, 1988).
  17.  Orio Giarini, Dialogue on Wealth and Welfare (London: Pergamon Press, 1980).
  18.  Carlos Andres Peres, “Toward an Index of Social Welfare,” Speech to the Second Meeting of the South Commission (Kuala Lumpur, March 1988) and Nicholls and Dyson, The Informal Economy (Ottawa: Vanier Institute for the Family, 1984).
  19.  Victor Anderson, Alternative Economic Indicators (London: The New Economics Foundation, 1989).
  20.  Stanley B. Greenberg, “The ’88 Election,” World Policy Journal (Summer 1988).
  21.  H. Henderson, The Politics of the Solar Age, pp. 297-302.
  22.  H. Henderson, “Rethinking the Global Vision,” Action Linkage Networker, #12 (Sept. 1987).

Publication By

Hazel Henderson

Hazel Henderson (D.Sc.Hon) was founder of Ethical Markets Media. She was a world-renowned futurist, evolutionary economist, a worldwide syndicated columnist, and author of award-winning Ethical Markets: Growing the Green Economy (2006) and eight other books. She created the Ethical Markets TV series, the EthicMark® Awards, the Green Transition Scoreboard® and co-created Ethical Biomimicry Finance®. Henderson’s first … Continued

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