Publications / Annual E. F. Schumacher Lecture

Voices of a New Economics

Introduction by Susan Witt

It’s 1994. We’re in Zaire. Neighboring Rwanda is going through a civil war. A million refugees are crossing the border into Zaire. The resources of Oxfam have been used up in other tragic situations. Other relief groups are not there as they are supposed to be. It is not the responsibility of Stewart Wallis as international director of Oxfam to solve this problem, but it is a human responsibility, and he rises to it. He demands that technology and human resources be brought together to address the situation, for instance by bringing water to these refugees. This is the same energy that Stewart Wallis brings to our looming economic problems. His attitude is: If not us, who? If not now, when?

Stewart graduated from Cambridge University in natural sciences. He first followed his love of nature but then went on to the London Business School for a master’s degree in business and economics. After spending seven years on the staff of the World Bank, in 1992 he joined Oxfam as its international director, heading a staff of 2,500 people. In 2003 he became the executive director of NEF, the New Economics Foundation, a 22-year-old organization that grew out of a protest movement at the then Group of Seven meeting in London. Please join me in welcoming Stewart Wallis.

I consider it a privilege to be invited to speak to you. It’s wonderful to be here, especially because I have found out in the brief course of this day how many of you are doing extraordinary work. Meeting people like you gives me hope for the future. I’d like to say that building the connection between the New Economics Foundation (NEF) and the Schumacher Center for a New Economics has been highly rewarding.

I’m going to talk about some of the things that Gus Speth and Neva Goodwin talked about earlier today, such as the issue of transition: why we need to transform the economy, why it is not enough just to fiddle, why we need what we are calling the Great Transition, what it would involve, and how to make it happen. What are the stories that are gripping us at the moment, and what new stories do we need to replace them with and spread as widely as possible?

I am also going to concentrate on some of the underlying beliefs and values that are holding the current economic system together, as well as the beliefs, values, and principles we need in order to transform it. I believe firmly that when actions are taken, the consequences are not immediately obvious. What determines those consequences are people’s belief systems. It is not a matter simply of actions that automatically lead to consequences; it is actions filtered through beliefs that lead to consequences, and therefore it is terribly important to understand people’s belief systems as well.

I’m going to cover five topics in my talk. First, I’ll discuss the systemic nature of what’s wrong with the economic system, attempting to weave together a few of its aspects. Then I will go on to the underlying causes, the myths that lie beneath them, because we have to understand where we are in order to know how to move beyond it. I will also consider principles for transition, what might be called the design principles of a different economic system. Next I’m going to ask what it will mean if we apply those principles. I want to try to put the pieces of that story together. Finally, I am going to talk about how to make the transition happen.


1. The Systemic Nature of the Problem

Susan mentioned the situation in Rwanda in her introduction. I want to refer to that because not only did it help me realize that sometimes the impossible can be made to happen, but it was also one of those rare “aha!” moments a person can have in life about the nature of the global economy. Let me explain.

Oxfam was one of the leaders in providing water and sanitation in emergencies. That was something Oxfam Great Britain specialized in. When the Rwandan genocide took place in April 1994 and nearly 800,000 people were killed, the Rwandan Patriotic Front army, which was then based in Uganda, invaded the country from the north. As a result, there was a huge outflow of people, most of whom were genuine refugees; there were also some who had been involved in the genocide and some who were army people. So it was a complicated situation. About 300,000 crossed the border, first into another part of Uganda, where we provided them with water. A few weeks later 500,000 crossed into Tanzania, and we barely managed to provide the water for them because at that point we had run out of money as an organization, and we had run out of water engineers. We determined that there was not much more we could do. Then those one million people Susan referred to crossed into what is now the Democratic Republic of the Congo, then Zaire. Because of the sensitive political nature of the crisis, they were not put near a town; they were put between two volcanoes, 35 miles round trip from the nearest water supply. These refugees had been walking for five or six days, they were exhausted, and cholera began to appear in a massive way—much more virulent than we had seen before or, luckily, than we have seen since. People were dying at the rate of 3,000 to 5,000 a day. The world’s media were there, including all the big television channels; the American army was there, the French army was there, and the German army was there.

I relaxed because I thought that—with all the media attention, with those three armies, with the United Nations—somebody else would take care of the situation. But the horrible truth started to emerge that nobody else knew how to do it. The armies had the technology to provide pure water for a battalion of 20,000; they didn’t have the technology to provide not very good water to a million people between two volcanoes and 35 miles from the nearest river. We came to the conclusion that we simply had to step in, but we didn’t know how. I persuaded my Director and Chair back in England that we should immediately go into about 5 million pounds of debt. We put out a massive appeal, we searched the world for water engineers, and we used the various armies to fly material in. We raised £25 million within two weeks, and we did succeed in providing water for one million people. The UN evaluation said later that about 50, 000 lives had been saved.

Now, why do I tell you this? First, because it struck me that the world system simply doesn’t supply something for which there is not an obvious market. And there was not a market for a rescue operation that involved providing water to a million people. Similarly, it dawned on me that governments supply only what might be necessary for their own people. Nobody had responsibility for providing that type of public good in that sort of situation. I knew from then on that it was going to be increasingly important to tackle the fundamental nature of the economic system—not only to keep on helping with relief and development and changing policies; we needed something like an economic transformation, which is why I joined the New Economics Foundation. The second major lesson the experience taught me is that with enough public backing, with a worthwhile cause, with the right people, the impossible is possible. This important lesson has stayed with me, and I think we need to hold on to it as we face the future now.

I see four systemic, interlinked problems with the global economy – I call them the four U’s. Our economy is unsustainable, unfair, unstable and is making us unhappy.

Unsustainable: We are running out of planet—no question. As Gus and Neva have both said, we face a serious risk of at least a 4 degree Celsius temperature rise compared to pre-industrial levels, with all the extinction of species and other problems that go with it. We are well on track for that. We are running out of much else as well, which is not widely known. The Millennium Ecosystem Assessment of a couple of years ago, which looked at the various life-support systems of the planet and the ecosystem services that flow from them, showed that 15 out of the 25 major ecosystems, the life support systems the whole planet depends on, are in decline or even serious decline. This includes fresh water, topsoil, pollination systems, fish, etc. So the problem is much wider than climate change alone. People haven’t grasped that, but they need to grasp it.

As Neva pointed out, the fundamental problem is not population—although the growing population is not helping—but rather overconsumption. The pervasive social modelling of “I want more” provides incentives to acquire more stuff. Let’s be clear what the issues are and how fast the situation is worsening. There is a measure called the global footprint, which basically assesses whether we are living within the planet’s resources or not. Back in 1980 the population of the planet was living within just about one planet’s worth of resources, a sustainable state. In the space of 30 years we have moved to consuming 1.3 planets’ worth of resources every year.  If you consider how long human beings have been on the planet, this statistic shows that in the space of just 30 years we have moved to overshooting the planet’s carrying capacity by 30 percent. The trend will become worse if we continue on the path we’re on now. If everybody in the world lived at the level we do in my country, the United Kingdom, we would need three planets. If everybody lived at the US level, we would need five planets. Because we have only one, it doesn’t work for everybody to aspire to our lifestyle. We have got to change. We are also running out of scarce materials, not just ecosystems. Aside from oil, look at the mineral shortages we face. The discovery and extraction rates can’t keep up with the consumption rate, which inevitably leads to wider scarcities or ballooning prices.

Unfair: The second major problem is illustrated by growing inequality, and the two are systemic and linked. Here I think people tend not to be aware of how fast this has changed. At the beginning of the twentieth century the richest 20 percent on the planet were between five and seven times richer than the poorest 20 percent. At the end of the twentieth century, the ratio had moved to 75 to 1. A dramatic change. A book I highly recommend to you, The Spirit Level by Richard Wilkinson and Kate Pickett, shows convincingly that the biggest driver of the social ills we face isn’t poverty per se, isn’t necessarily even unemployment although that is a major factor. It is inequality. The degree of inequality in a country corresponds closely to all sorts of social ills within that country, from the prison population to the number of unwanted teenage pregnancies to drug use. This growing inequality exists at the corporate level as well. I have seen statistics—which I have not been able to verify fully, but I think the order of magnitude is right—showing that CEO earnings in American companies in 1980 were around 42 times the average earnings of the employees in the company. By 2007 the ratio had risen to 344 times the average earnings of the employees—again a massive change in a short time.

Economists used to talk about wealth “trickling down” to the poorest as the economy grew. What we are seeing now is wealth being “Hoovered up” from all sections of society to the very rich.

Unstable:  We need our economic systems to be both resilient and efficient, the way ecosystems are. Economics is terribly bad on resilience, which it does not have easy ways of measuring. Because we have designed our economic systems only for efficiency, we have minimized safety nets, buffers, and firewalls. As a result, we have systems that are neither efficient nor resilient because they keep on collapsing. For example, the subprime crisis in the US housing market spread throughout the world and nearly brought down the banking system. There is no resilience built into the system. You can see the same thing happening with currency crashes in Ireland and Greece. All across the world the frequency of unstable events is increasing.

Do you know why San Francisco burned down in 1906? Before 1906 all the hydrants in a city were filled from one place; they were all connected by pipes. Water in one central place flowed through to the different tanks. If there was a fire on Post Street, the water was right there. A cost-effective design. The trouble is that when an earthquake comes along, the pipes rupture, the water flows out of the system, and fire spreads through the city. Now each tank in a city is filled separately. We need to design not only for efficiency but for resilience as well.

Unhappiness: As Bill McKibben beautifully said, “More and better are parting company; more income is not equaling better lives anymore.” Furthermore, well-being is declining in many of the so-called developed countries. What I think most of us don’t realize is that mental health problems are increasing rapidly in many places. In “advanced” English-speaking countries, it is now reckoned that close to one out of four people is suffering from some kind of mental health problem or illness. We are not happy people.

Putting all four problems together, it is clear that we are running faster and faster in the direction of unsustainability. We are burning up the planet, we are causing huge instability and inequality (with all the associated social problems), and we are not making ourselves any happier—if anything, less happy. Isn’t that stupid? Moreover, and I don’t want to make you feel too gloomy, but to add just a little bit more gloom, these problems are interconnected.

About five years ago we calculated how much the global economy would need to go up if those who are now living on one dollar a day were to have an additional dollar. You need to raise the GDP of the whole world by $166 a day to in order to add one more dollar for each person now earning one dollar a day. It’s ecologically impossible to keep doing that. If you want to have everybody on the planet earning $1000 a year, which is $3 a day, and you keep global income distribution as it is and keep the resource intensity of output as it is, you need fifteen planets’ worth of resources in order for everybody in the world to make $1000 a year. We haven’t got fifteen planets. So the need for transition is overwhelmingly clear when you start looking at these simple facts that can be figured out on a slip of paper.

Gus talked about the risks ahead: climate disaster, ecological migrants, resource wars, trade wars, prices going through the roof and triggering further depressions. All these are likely if we don’t change. It does seem to me that going on with business as usual is the worst thing we could possibly think of doing. It’s as if a man jumps out of a window on the hundredth floor of a skyscraper, and with every floor he passes he reassures himself that all is fine. Then a strong wind blows, threatening to push him against the side of the building (an analogy to the financial crash and the current recession). This frightens him, but then the wind subsides, and he breathes a sigh of relief as he continues to fall. Politicians and economists are breathing that sigh of relief as we seem to be edging back to “business as usual,” but much bigger dangers are looming! The need for transition couldn’t be more urgent.


2. The Underlying Causes

Let’s look at the underlying causes of our predicament. I believe that much of economics, as it is now taught and practiced, is both intellectually and morally bankrupt. That’s a strong statement for me to make, but I think this is much truer for economics than for many other disciplines. So much of what we base our thinking on are old myths and half-truths in addition to some new myths that have developed. The renowned economist Maynard Keynes said, “Practical men who believe themselves exempt from any intellectual influences are usually the slaves of some defunct economist.” I think that statement applies to many politicians and leaders today.

There are three pervasive economic myths that have been around for a long time. The first is that markets are fair. Markets do not provide the right outcomes for the benefit of the most people. Sometimes this myth is linked to the idea of “the invisible hand.” Well, Adam Smith did mention that invisible hand once in The Wealth of Nations when he was talking about a bakery. But the situation on which he predicated it was that there were large numbers of buyers and sellers, none of whom could influence the price, and furthermore that those actors were behaving in a moral way. Now neither of these assumptions applies. We see huge concentrations of power in many markets. There are four or five companies that control 80 to 90 percent of the world grain market; the same is true for numerous other markets. And look at the purchasing side: do people have equal purchasing rights? No, they don’t. The richest 1 percent of the people in the world earn as much as the poorest 57 percent. That doesn’t come close to resembling a level playing field.

What happens to markets where power balances aren’t equal? It’s fairly simple. If you go into a market with more power than the other players, you don’t end up with the same amount of power but rather with even more power. The idea of self-leveling simply doesn’t apply. We need to remember that Adam Smith also wrote The Theory of Moral Sentiment, in which he argued that markets work only if the actors are moral—and of course they’re not.

Now, let me be clear. I am pro-markets; I am pro-profits and pro-companies. I think they play a critical role. But markets and companies are social and political entities we have created, not some mysterious black box. They need to be managed by us. I certainly don’t recommend a planned market like the Soviet Union’s, but I do believe that we need to start managing markets for the wider good. Environmentalist and energy-efficiency expert Amory Lovins put it very well when he said, “Markets make a good servant, a poor master, and an even worse religion.” What we have now are markets as religion, and let’s not be surprised that we are suffering the consequences.

The second of the three myths is that prices tell the truth. Prices don’t tell either the social or the environmental truth. Øystein Dahle, vice-president of Exxon Mobil from 1985 to 1995, said: “[Communism] collapsed because it didn’t allow prices to tell the economic truth. Capitalism will collapse because it doesn’t allow prices to tell the ecological truth.” At the moment, prices don’t tell the ecological truth at all, and in a whole range of cases they don’t tell the social truth either.

The third myth is the one I’ve already touched on—that more income equals more happiness. For many people in the world it does not. It probably holds true only if you’re poor.

The new myth is that we can continue growing forever. Economist and systems theorist Kenneth Boulding said, “Anybody who believes that we can have infinite growth in a finite world is either a madman or an economist.” What he perhaps should have added was that there are quite a few who fall into both categories. Present company excepted of course.  Much of economics is morally and intellectually bankrupt because so many people cling to the old myths. Clearly, it suits the most powerful people to keep perpetuating these myths. But it’s important for us to know that they are not valid; otherwise we won’t tackle the resulting problems effectively.

Most of the philosophical underpinnings throughout much of human history are based on two types of view. (And forgive me for giving short shrift to a big subject for lack of time.) There are the utility theories of Jeremy Bentham and others that promote the maximum benefit for the maximum good, and don’t worry about those who are left behind. This has been the prevalent attitude in economics. But many in this room, including me, identify much more strongly with the individual-rights-based view that we each have a whole series of rights. The trouble with the individual-rights-based approach—and there are many different variations from Kant to John Rawls—is that it doesn’t fully apply anymore. We might individually be acting ethically and according to our rights, but if the collective outcome is that we consume more than our fair share of existing resources at the expense of other people on the planet or we consume resources that then are not available to the next generations, this is not moral behavior. Thus, we don’t even have a common moral framework anymore, with the result that our operating systems, philosophically and economically, are broken. It’s critical that we rebuild them, because without them we won’t get where we need to go.

I’ll end this part on economic myths by telling you what President Clinton should have said instead of “It’s the economy, stupid.” He should have said, “It’s the economy that’s stupid, stupid.”


3. Principles for Transition

Now let’s dream a bit. Dreams are vital because we can turn them into reality later. If we don’t have a dream, we’re not going to bring about the change we want. What then are the principles on which we should design a new economic system? I’ll offer a few suggestions, but there are many possibilities. A couple of years ago the Chilean economist Manfred Max Neef and I worked with a group of people from different backgrounds to come up with five criteria for a good economy. There could easily be variations on them.

  1. The economy should be designed to meet human needs—not human wants—and improve quality of life.
  2. The economy is a subset of the ecosystem, is therefore bounded by ecosystem limits, and must be designed to take them into account.
  3. There must be equity in terms of basic rights and better distribution of income and assets, both between people alive now and between the current and future generations.
  4. There must be appropriate scale and the right balance between resilience and efficiency.
  5. Reverence for all life, which involves moving from an anthropocentric view of the world to a biocentric view, is essential.

These criteria seem so obvious—and they are obvious—yet to apply them would be utterly radical. What would implementing them look like?

Meeting human needs: To meet human needs and improve quality of life require measuring things differently. Well-being becomes the key goal we strive for. It was Robert Kennedy who said that GDP measures everything except those things that make life worthwhile.  We need something that measures what makes life worthwhile, and we can argue about what that something is.

Four or five years ago nef came up with what we call the Happy Planet Index, a name that I’m told doesn’t play well in the United States. The Index measures people’s well-being and how long they live, taking into account the ecological efficiency of different countries in creating these long and happy lives. We normally reckon that if a 45-page PDF is downloaded from nef’s website 30,000 times, that’s excellent; the Happy Planet Index has been downloaded over a million times in 180 countries. Various governments are talking about it; it has gone viral.

We redid our assessment just recently. Who comes out at the top? Costa Rica—a country, by the way, that abolished its army in 1949. Average life expectancy in Costa Rica is 78.5, which is higher than in the United States, and well-being is also higher. Ninety-nine percent of Costa Rica’s electricity is generated from renewable sources. Its healthcare and education systems are first rate, and it has one of the highest literacy rates in the world. All this is done on a quarter of the average ecological resources, the average global footprint, of most Western countries—and an even smaller amount, something like a fifth or a sixth, of what the United States uses. Costa Ricans are creating genuinely long and happy lives at much less cost to the planet. We tend to think the future lies with America or Europe or China. But as Nic Marks, who heads nef’s Centre for Well-being, said when he spoke recently at a TED conference (Technology Entertainment and Design is a nonprofit that promotes “ideas worth spreading”), maybe the future lies with Latin America. Maybe those countries know something we don’t. We ought to be learning from them.

The concept of well-being is not just about how happy people feel, it’s about the development of their competencies and their pro-social behavior. The two factors that make the most difference in people’s well-being are the quality of their relationships and how valued and valuable they feel in their society. People who take part in team activities and the arts tend to have high levels of well-being. If people are unemployed, that really puts a dent in their well-being. If a society is characterized by inequality, people’s well-being is affected collectively, including those who are best off financially. The earth’s environment is being destroyed, and this too has a negative impact on people’s well-being.

We know what makes people flourish and gives them self-confidence. We have an objective in the United Kingdom called five-a-day fruit and vegetables. If you want to be healthy, you will eat five portions of fruit and veggies. There has been a big advertising campaign for that. We worked with the British government to come up with five-a-day for well-being—and what were they? They were connect (having to do with relationships); be active; take notice (look around, be there); keep learning; and, that most uneconomic of activities, give. Giving doesn’t fit in with economics at all. To give freely is the most irrational thing to do, yet it’s what makes us most human. So we have to start measuring what really matters, and that will lead us onto new paths. But what if those paths are bounded by ecosystem limits? Well, that presents a big dilemma.

Ecosystem limits: I was at a conference recently with economist Tim Jackson, the economics commissioner on the UK government’s Sustainable Development Commission and director of RESOLVE, the Research group on Lifestyles, Values and Environment. We were up against Daniel Ben-Ami, who had written a book called Ferraris for All. Tim said that we are the first species to believe there are no limits, whereas biology shows that there are limits, and all that seems to grow forever are cancer cells. We should take note of that. The Ferraris for All man said: “We humans are different. We can overcome that; technology will do it.” People really believe that. I think it’s very dangerous.

Most of the people in that room, who weren’t just your typical audience, truly believed there shouldn’t be any limits to growth. It reminded me of the “no” syndrome I encountered when one of my daughters was two years old. People have the amazing ability to ignore facts and information they don’t like, and say: “I want that! And furthermore, technology will enable me to have what I want!”  Well, sorry, no it probably will not. I think part of why so many people think this way is because they have stayed at that two-year-old stage. It’s partly self-interest, and it certainly suits many of us, because if there are limits, then we have to think about sharing resources, and that can be a tough assignment.

The conference was put on by the Institute for Ideas, a group of people who come originally from Living Marxism magazine. It was the first meeting I’ve attended where a number of people, about 15 out of 200 or 300, had read Nef Reports from cover to cover, which is flattering—except that they were pulling them to pieces, all from a common point of view. This felt like the first signs of a Tea Party in the UK, and it was frightening. Much of the audience agreed with the points Tim Jackson and I were making, but a surprisingly large number did not, probably didn’t even listen but certainly didn’t change their view if they did. So it was a strange conversation and a worrying one.

The crucial issue is that the economy is a sub-set of the ecosystem, and even with massive technological change, it is impossible for all of us to have what we want. Instead, we need a transformation to an economy that meets human needs, improves well-being, and does this within planetary limits.

The equity principle: Essentially, we need social and economic rights for everybody. In 1948 all the nations signed the UN Universal Declaration of Human Rights. We have obviously forgotten that we agreed to social and economic rights as well as civil and political rights for everyone on this planet. We need to remember that. Every single human being on this planet deserves those basic rights. That’s the underpinning. And if a government doesn’t meet the requirement, the international system must help provide those rights. But this doesn’t answer the question of how to deal with equity in an advanced country. Clearly, the distribution of wealth must be much improved. The question is how much? Some would argue that discrepancies in income should be based only on differences in talent and effort and that should be the sole determining factor. This presents a problem, because what is it that determines the amount of effort or talent a person has to give? To some extent it may be individual ability, but much depends on upbringing and opportunities.

We need to stop pretending that there isn’t an inequality problem; we need to have an honest debate about what levels of equality we want and how to attain them. If we don’t, we won’t be able to solve our social problems. We must look creatively at the mechanisms for improving equity. It’s not income distribution alone that’s involved. Assets, time, and carbon usage also come into play and can provide much more palatable and clever ways of redistribution than income alone. For example, at the global level, if there is a global commons of the atmosphere, then everybody must have a fair share of the limited carrying capacity of the atmosphere. Those using more than their fair share should reimburse those not using their fair share, who are some of the poorest people on the planet. This would bring a massive redistribution of resources. That’s easy to say but so difficult to bring about.

Equality between generations is also vital. Currently, when judging future usages of money we apply a discount rate. In a resource-constrained world, discounting the future is the last thing we should be doing!

Appropriate scale and the right balance between resilience and efficiency: Appropriate scale is crucial. Some issues are better addressed at the national or even the global level. When we’re dealing with carbon, for instance, we need to talk globally. Other matters are better taken care of locally. There must be a revival of the sorts of activities many people in this room are undertaking to bring about thriving local economies, with more local food, more local energy production, more local businesses. The work that the Schumacher Center for a New Economics is doing in the Berkshires of Massachusetts and other places is an important part of that revival. It has been calculated that less than 1 percent of people in the UK are currently involved in food production—probably it’s even less in the US—but it could very easily be 20 percent, and we could be growing a lot more food locally. I don’t mean that 20 percent of the population have to be involved full time but at least to some degree.

What does a balance between resilience and efficiency mean here? It means designing firewalls and safety nets into all our systems, and it means having a diversity of actors in each area of the economy. Thus, a financial system should not be run exclusively by a small number of big banks but should be an ecosystem of different institutions of varying sizes and varying corporate forms: e.g: credit unions, local banks, mutuals, etc.

Reverence for all life: This means valuing other species as well as factoring in the symbolic, the spiritual, the aesthetic, and other ingredients that make life worthwhile. Reverence includes the concept of stewardship. If we are serious about moving to a biocentric view and thinking about future generations, then we will of necessity be stewards. The idea of ownership must be modified by stewardship. We might still own our house, our clothes, and so forth, but we should be stewards of land, stewards of minerals, stewards of oil, stewards of the seas, stewards of the commons. We urgently need an in-depth debate about what we should own and what we should be stewards of, but we are not having it yet.


4. What will the Transition Mean?

As you will have gathered by now, carrying on as we currently are, consuming so much of our planet, is impossible. Yet if we stop consuming stuff substantially, that will throw us into a big recession. For people out of work, this is not going to increase well-being. What Peter Victor, a fellow board member of the Schumacher Center, has done in Canada is highly interesting. He did a business-as-usual model, which means massive carbon emissions as well as growing unemployment and failure to solve the debt problem. A second model stopped growth and consumption immediately, which puts many people out of work. It solves the carbon problem but doesn’t solve the well-being and social justice problems; it causes bigger problems in society. But the good news is that there is a path to take that does require, as I have already hinted, the right degree of investment in the right areas of the economy. It requires sharing work differently and, as Neva said this morning, in some cases making a trade-off between income and time. There is no perfect solution, but there is a solution that will provide a better life in a more fair society. Enough jobs can be created for everyone, and this can be done within planetary limits; it can be done according to Canada’s “Fair Share” under the Greenhouse Development Rights Framework that is pursuing emissions reductions far beyond anything previously contemplated. That sounds pretty good to me. I’ll go for that.

This requires us to think differently about productivity. We have a system that must grow because we are constantly trying to earn increased returns on capital, which means reducing labor costs. And unless we grow, we won’t create enough employment. If the scarce resource isn’t capital, then it is natural resources—ecological capital not financial capital. If our well-being comes from creating good and fulfilling jobs, then the system should be designed merely to satisfy its capital returns, not to create greater returns to capital. The system has to create jobs for enough people per scarce unit of ecological resource. That becomes what you’re trying to maximize. You’re trying to maximize employment, and the right types of employment, per scarce unit of natural resource.

This is a radically different economic system, and it requires a transformation of our thinking, but it’s one that can work within the market system. It clearly requires an industrial and financial strategy. It requires a government to be strategic. Here is what I don’t understand—somebody explain it to me! I am running the New Economics Foundation, and I am expected to have a strategy. If you are running a charity, you are expected to have a strategy; if you are running a local government, or if you are running an arts organization, you are expected to have a strategy. But if you are running the government? No! You don’t need to know where you’re going or what you’re trying to do. It’s pretty bonkers because of course a government does need to have a strategy. Only a few governments have been good at it. South Korea, for example, achieved massive land reform when I was working for the World Bank. It invested heavily in education; it decided which sectors to develop; it targeted financial resources, targeted incentives and tax relief; and it created institutions. In sum, it decided what it wanted to do and did it successfully. As a result, the South Korean economy has been transformed. Admittedly, its civil and political rights were not anything to write home about, but that’s a different problem.

We don’t need a huge nanny state that does everything for us; we don’t need a small state either. We need a strategic state that knows what it wants to do and sets up the appropriate incentives. We need an industrial policy that doesn’t pick winners or losers but picks the sectors that should be developed. And we also need a monetary policy that is far cleverer than what we currently have.

There isn’t time to go into the whole issue of monetary creation, except to say that there is only one free lunch in the world, and that is the one bankers have with money creation. They can create money out of nothing. I believe there must be a 100 percent reserve requirement for those sectors that aren’t productive so that banks can lend out only the money that people have lent in. But for the sectors we are trying to develop, probably we could allow credit creation.  There also need to be other components such as complementary currencies. But monetary and fiscal instruments should be designed not for the economy as a whole but for the sectors we want to develop and not for the sectors we don’t. There needs to be intelligent design.


5. How to Make the Transition Happen

Let’s get to the final point of how to proceed. I really believe the “how” we are proposing is feasible. The key purpose of the Schumacher Center is to pool the brilliant ideas and the work that many people are doing in this country and beyond, to aggregate those ideas and amplify them, to communicate them in stories told in a compelling, exciting way that makes people say, “Yes, I want to change, and yes, I want to help bring about change.” The message has to be positive, and we need to accompany it with campaigning, with good research, with lobbying—when I say “we,” I mean us collectively. There is an impressive base to grow on: the work of the Tellus Institute, the Transition Town movement, nef, Schumacher Center, the work of many of you, all the partnerships. But what we must do is bring all this together to tell a compelling tale—and tell it in new language. The people who came up with free markets were very clever; their stories are so simple—and so misleading. We want to offer something that is simple and not misleading. We can do it.

The New Economics Foundation and the Schumacher Center are working on a model for the UK economy and the US economy to show how we can make the transition. We are going to set up a commission to identify ways of moving to a low-material economy. The campaigning we’ll do is what we call acupuncture campaigning, trying to find those places where carefully planned and pointed interventions could shift the current financial system. We’ll also campaign in a lighter vein. We’ve come up with the story of “the impossible hamster.” Now, you may or may not know that a hamster doubles its birth weight every week from birth to puberty. It grows pretty fast, doesn’t it? Luckily, it stops growing at puberty. If it didn’t stop then, at one year old it would weigh nine billion tons and every day would be consuming the entire grain supply of the world. That’s for one hamster! This is a serious lesson in what infinite growth is like and why it’s impossible in a finite world, but it’s told in an amusing way.

We don’t think fundamental transition will happen without a movement for change. What we want to do and what we are trying to work out with partners, initially in the UK and US but then worldwide, is to bring about a movement for change in various sectors. The Transition Town movement has done wonders as a social movement about places in transition; we want to expand what they have accomplished to society in transition, bringing the various environmental and development and other groups together. We also want to grow the movement with businesses in transition, faiths in transition, arts in transition, education in transition. Businesses won’t change, and can’t, without either people buying differently or governments changing the rules of the game. And governments won’t change the rules of the game unless people demand that they do so. Without serious people pressure, we can write all the reports in the world, conduct all the brilliant research, and do all the good lobbying, but it won’t bring change. It takes enormous momentum for change to happen.

The Jubilee Debt Campaign, a coalition of national organizations and local groups worldwide calling for cancellation of the unpayable debts of the poorest countries, didn’t accomplish as much as it wanted to; nevertheless, it did achieve over $100 billion of debt forgiveness for the poorest countries and, for example, enabled 500,000 children in Uganda to go to school every year. When we started the campaign, we went to the UK Treasury to promote the plan. One senior official, having told us we were going to wreak moral havoc and the world financial system would collapse if sovereign debt was forgiven, said as we were leaving, “Go away and play with your toys.” That was the best thing he could have said. It was so rude that it made us all angry. So we did go away and play with our toys. We were able to involve the faith groups, together with many others. Forty million people worldwide signed the Jubilee Debt petition. The G8 meeting in Birmingham was surrounded by one hundred thousand Jubilee supporters, upsetting the world leaders in attendance. We had done extensive research to demonstrate how many more children were going to school as a result of the Campaign. In the end, it was a matter of good research combined with good lobbying and with people power—and enough voices were heard to have a major impact.

We must do the same thing now. Our task is to adopt that approach and tell that tale in order to show that our goal is necessary, is desirable, and is possible. We must be convincing, because know we can do it technically. We can achieve greater well-being, more employment, happier lives, and do so within ecological limits. The difficulty is to persuade enough people to exert enough pressure to make it come about. It will happen anyway, but I don’t want it to happen as a result of impending disasters; I want us to make it happen. We are at that Galileo-Copernicus moment when people are ignoring the evidence in front of their eyes. They’re still saying the sun is going around the Earth. We know otherwise, and we need to help countless more people to know otherwise. We need people to shout that we need to change. I leave you with those two questions cited by Susan: “If not us, who? If not now, when?”


Excerpts from the Question & Answer Period

Q: Reverence for life—all life, including nonhuman life—was last on your list of criteria for a good economy. I know something had to be last, but I was suddenly stuck by the anthropomorphism of much of what we’ve been talking about today and the fact that I haven’t heard anybody say anything about nonhuman life other than as part of the natural resources that we instinctively exploit or perhaps choose not to exploit. Economics as if people matter seems to implicitly treat nonhuman life as instrumental, and I wonder if we can afford to do that.  What would happen if reverence for life was first on the list and our philosophy flowed from the knowledge that all life on earth, not just human life, has a right to be here? 

A: There’s no logic to it being last on the list, and I see very good reason to change the order in future because I totally agree with you. I think if we don’t move from the anthropocentric to the biocentric view, we aren’t going to be the people we should be. Thomas Berry’s biocentric view in The Great Work absolutely provides a philosophical basis that we should live by. The point is not that we make use of other species; it’s that we have reverence and respect for them and value their survival, not just because it matters to us, which it does, but because we value their survival for their sake as well. I think we’re in the odd position of being the first species on Earth to have the power to destroy the planet, and that carries tremendous moral responsibility, which we have not taken.

Q: I’m vice-chair of the Worldwatch Institute based in Washington and founded by Lester Brown. The State of the World report for 2010 has the subtitle Transforming Cultures: From Consumerism to Sustainability, which ties in quite nicely with the program today. It seems to me that we’d be able to do a more effective job if, for example, nef and World Watch and a number of the organizations represented here come up with a collective statement and then reach out to some lobbyists and some of the enlightened corporate types who are willing to speak out. You may have heard that a major investment manager in California contributed $5 million toward defeating an oil-company-based initiative that would have derailed existing environmental protections in the state. I urge nef and the Schumacher Center and other like-minded organizations to join together in an effort to gain more lobbying power and to frame certain issues our way instead of the way they are currently being put forth.

A: I think an appropriate analogy is that of an orchestra. Lots of people who know change is needed are playing their instruments using different scores and in different orchestras. As a result, the collective sound is not easy on the ear, in fact is horribly discordant. What we need to be doing is playing our different instruments with our different skills and different backgrounds—the practical, the theoretical, the spiritual—but all with the same score and in one orchestra, making undeniably beautiful sounds. That’s my version of it.

Q: I wonder if you could talk a little bit about “the Big Society” in the UK. We don’t hear much about it, at least I don’t, in the US.

A: The Government’s idea is for individuals and communities to have more power and responsibility and use it to create better neighborhoods and local services. There are some good steps the current coalition government is taking in this regard: for example, the Prime Minister is talking about well-being and the need to measure it. In some areas the current government is doing admirably, but there is also a collective masochism that insists on massive spending cuts, which actually aren’t necessary economically on anywhere near the scale they are being made. I don’t mean there aren’t some cuts needed, but what worries me is that the idea of big society, which is good in theory, is coming in a context in which 500,000 people are going to be unemployed in the public sector; a further 500,000 people in the private sector (and the UK has a population of somewhere around 60 million) are going to then be made redundant as a result of reduced demand in the economy. The fact that people who have been made redundant and are facing all the problems unemployment brings are somehow going to find the energy and the leadership to devote to getting things done in their own community is fanciful.

I like the Big Society idea of empowerment of people, the idea of people being much more their own subjects rather than having things done to and for them. That is good, but I don’t think one can talk about social empowerment without talking simultaneously about economic empowerment and political empowerment. I see very little political empowerment, and economic empowerment is declining, not increasing. Under these circumstances the Big Society won’t be able to flourish. The concept is a good one, but the situation in which it’s being given birth is highly unfavorable, and I worry it will devalue the whole concept. The problem is that the implementation strategy is half-baked. It’s a partly baked cake. It’s not going to turn out well in this current context.

Q: Is nef working on ways to minimize the impacts of enormous extra-national organizations like hedge funds and other large international capital funds that can exert great influence on a country? For example, right now pressure is being put on Ireland to accept a bailout even though the government doesn’t like the idea. Countries may wish to adopt sustainable economies, but large, powerful investing groups don’t want them to. How can we counteract that?

A: That’s an important question. For many years nef has been working on community finance, on credit unions, and on local banks as well as helping to create businesses in deprived areas. That’s why we call ourselves a think-and-do tank. Just in the past year we began trying to deal with the wider issues of banks, but it’s a massive task.

There are papers, by the way, that you can get on our website, including “The Great Transition,” which look in much greater detail at some of the issues I’ve been talking about. There are also two reports on banking, “The Ecology of Finance” and “Where Did Our Money Go?”  We’re arguing that the crucial building blocks of a good finance system should be fairness—i.e., that it really does deal with the equity issues—and stability, which means separating the investment banks and the retail banks. The disastrous repeal of the Glass-Steagall Act in the US in 1999 removed the separation between the two. The third building block should be the social usefulness of banks.

It seems totally wrong to us that banks are a) given a subsidy through their ability to create money and b) are given massive state assistance when they get into trouble. There is no other situation where gains are privatized and losses are nationalized, which is exactly what’s been done with the banks. What they’ve gotten away with and are still getting away with is criminal. Their bailout probably needed to happen to some extent, given the severity of the crisis, but we urgently need to be clear about the role of certain actors who failed to prevent the crisis and subsequently profited hugely. The idea that rating agencies get their fees from the people they’re rating is simply bonkers.  There are supposedly firewalls between the auditors and the people working as consultants in the big accounting firms, but there are serious doubts about how this arrangement works in practice. The whole thing is riddled with conflicts of interest, is riddled with means of self-perpetuation.

It’s a huge task to take on an industry as powerful as banking; we’re trying to partner with all sorts of people and to do so in a fun way as well. You know, Goldman Sachs is described as a vampire squid. We’ve come up with a vampire squid animation that is highly popular. It’s going to take humor, it’s going to take determination, it’s going to take people power, and it’s going to take research, which is still in the early stages. Banks have been getting away with economic murder, and we need to put a stop to that.

Q: I think the extent to which things don’t count in this culture unless they can be measured or quantified presents an insidious trap. How can love and caring and spiritual life be quantified?  Something I find exciting is the extent to which love can begin to be measured in the neuropathways of the brain, so I always wish there would be neuroscientists as part of conversations like today’s. There’s a book I recommend called The Master and His Emissary by Iain McGilchrist, who’s an Oxford English scholar and also a psychiatrist. The subtitle is The Divided Gain and the Making of the Western World. It has to do in part with the logic of the right hemisphere of the brain.

A: I like your point about the insidious trap. There’s not a simple solution. On the one hand our culture fails to measure what has value, but on the other hand, how do you measure the value of something like an ecosystem? I’m worried because I think we have to be terribly careful about marketization. It’s not going to be good enough if we put values on ecosystems but then trade them. That’s very dangerous. We’ve got to have a mixture of measurement with regulation and refusal to trade that which shouldn’t be traded. I think it’s useful to assign values but only without allowing those values to be traded; otherwise one gets into terrible trouble, I think.

Q: I’m from the Rainforest Action Network and Foundation Earth. I’ve been following a couple of other efforts to redesign the economy. I read an op-ed by Joseph Stiglit a few months back—I think it was in the Financial Times—calling for a new economic paradigm for the planet. I understand he got a big chunk of money from George Soros. The second effort is the French de-growth movement, which in the past couple of years has joined forces with ecological economists, and there does seem to be an increase in sustainable de-growth. I’ve looked at some of their papers, which are relatively substantial and express a more strident critique than what we’ve heard from the three speakers today. Do you see anything promising in those efforts?

A: There’s obviously not time for me to go into a full critique of Joe Stiglitz and the work he’s done with Sarkozy and Amartya Sen. I’ve met with him a couple of times, and just this week while here in New York I’ve been talking to Rob Johnson, the director of the Institute for New Economic Thinking, which Soros funded and is on the board of. We’re trying to work closely with them. We’ve also been involved with the de-growth conferences.

As for the more radical nature of the two efforts you refer to, I can say only that nef is also regarded as radical. We need to be clear, however, about the path we should take, which is not as simple as saying we’re against growth and let’s put on the brakes. That seems like a negative message.  The more positive message is that we’re here to create greater human well-being, to do so within ecological limits, to make a more just society, and to provide enough employment. That’s the goal, and it may require no growth in GDP terms. The economy will grow in happiness terms, it will grow in inventiveness, it will grow in many ways, but it may require economic de-growth.

De-growth is not, however, the purpose. I’m not wedded to that as a religion. I’m wedded to improving the human lot, which will require us to transform the economy. Nef originally came up with the Green New Deal, the idea that we invest both in the green sector and in the creation of something like a Rooseveltean New Deal. Obama even picked up on that term when he was campaigning for the presidency. Investing in the green economy might even grow the economy in GDP terms, especially after the current recession. What we’re saying, though, is that green investment is a necessary precursor to then living within our ecological limits, so I don’t mind whether things grow or not. I do mind fundamentally whether we respect nature’s limits and whether we’re making a more equal society and a happier society. That’s where we differ somewhat from your two examples in terms of growth.

Q: I’m from Good Business International, a sustainable economics media company here in New York. I really appreciate what you’re doing. As a matter of fact, we are working on what you are, and I think the more like-thinking people and groups that connect, the more the whole paradigm can shift and advance the work. I was struck by what you said about the interconnectedness of the global markets. We’re beginning to find that out in terms of global climate change, for example.
What concerns me right now, and I think everyone should be concerned, is that the derivatives market is forming a giant balloon. It wasn’t changed after the financial crisis, and it hasn’t been regulated. 

A: You’re absolutely right. I worry about the international system, in ways even more than about national governments. We are nowhere near having a sensible, workable way of dealing with our global problems at a global level. We’re not dealing with the financial issues. You know, Keynes had it right way back in 1944 when he argued at Bretton Woods that it was equally important to deal with both deficits and surpluses.

A strong argument can be made, though this is very controversial, that capital controls are needed. We can have free trade, we have free movement of people, but we need to control capital. We have to control by whatever means the amount of trash that’s sloshing around the system in all sorts of weird markets. Uncontrolled capital is not socially useful nor is it serving a key purpose. Supposedly it’s providing liquidity, but that is not the case. It’s not helping business, it’s not helping us, it’s not helping to get on the right track. I believe strongly that we must start thinking differently about the global architecture, although not necessarily in terms of a global government structure. If you think about it, at the global level we’re still the way Britain was in the fifteenth century Wars of the Roses, with the barons knocking each other around. We have no means at the global level of managing the environment, of redistributing resources, of taxing effectively. We have none of the mechanisms we take for granted at the level of a civilized country or even at the state level. We’ve got to find some means of doing that at the international level as well. So I’m with you 100 percent. We’re in adolescence or even infancy as far as the international system is concerned, and it’s a real problem.

I seriously think that common cause can be made among businesses and many environmental and development groups and others, because all of us are at the mercy of the financial system that’s pushing us in the wrong direction, and one of our key tasks is to stop that.


Publication By

Stewart Wallis

Stewart Wallis is currently Chair of WEAll, the Wellbeing Economy Alliance ( WEAll is the leading global collaboration of organisations, alliances, movements and individuals working together to transform the economic system into one that delivers human and ecological wellbeing. Previously he was  Executive Director of NEF -the New Economics Foundation (the UK’s leading think tank … Continued

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