December 19, 2014

The future of an affluent society – the case of Canada (Part Two)

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This article examines in depth how even Canada, a vast country blessed with abundant resources and with a relatively small population, is far from immune to the problems arising from industrialism and its associated social and economic disruption. It was published in The Ecologist vol. 7 no. 5, June 1977.

See also Part One and Part Three (which includes the list of references).

Note: click on images to enlarge.


Economics

Economics like most of the disciplines into which we have divided modern knowledge (sociology, and psychiatry, for instance) has been built up on the basis of the examination of but a minute fraction of man’s total experience on this planet – basically, that of the industrial era, no more than 150 years out of 3 or 4 million. What is more, this period is quite atypical of all other previous periods, and also non-recurrable -since its main features are dependent, among other things, on the consumption of a limited reserve of fossil fuels which have taken 300 million years to accumulate (since the end of the Carboniferous period), and which we shall have largely burned up in 300 years – the most valuable part, i.e. the oil, in less than 50.

Karl Polanyi, [73] George Dalton [74] and others have convincingly shown that modern economics simply does not apply to pre-industrial and, in particular, tribal peoples. One finds among the latter no trace whatsoever of the ‘homo economicus’ who tries to maximise the return on various factors of production such as capital and labour. Instead, things, are grown, manufactured and distributed to satisfy kinship obligations, for ritualistic purposes, and in general to conform to socially approved norms and thereby to favour the acquisition of social prestige.

The more we examine the economic behaviour of primitive people, the more it becomes apparent, in fact that the principles of modern economics, rather than being of universal application, as we have been led to believe, apply at best, to but a specific period in our history – what is more, one that is fast drawing to an end.

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Economics as an autonomous process

Underlying economics is the notion that the production-consumption process occurs in a closed system. [75] This is implicit to Marxist Economics, which regards labour as the only factor of production and hence as the rightful beneficiary of all the fruits of the industrial process. It is also implicit to capitalist economics, which, though it recognises that there are other factors of production – including land and resources for instance – prices them in accordance with their immediate value to the economic system only.

From the point of view of the economic system, their value is determined by supply and demand. To acquire value, something must thereby first enter into the production-consumption process and also it must become scarce. As Samuelson states,

“if there is no scarcity there is no economics, since the main justification of this discipline is to enable people to make the logical choice between benefits with different marginal utilities.” [76]

The value of commodities increases when, to use the jargon of the economists, their marginal utility increases, which is simply a way of stating the law of supply and demand. Seen slightly differently, the more there is of a commodity, as Samuelson puts it,

“the less the relative desirability of its last little unit becomes, even though its total usefulness always grows as we get more of the commodity. So, it is obvious why a large amount of water has a low price. Or why air is actually a free good despite its vast usefulness. The many units pull down the market value of all units.”

Since ‘cost’ must imply reducing the value of something, it is not surprising that economics does not provide any formal means of taking into account the effect of the economic process on the biosphere, in other words ‘biospheric costs.’ These are external to the economic system, functioning in a closed system as it is supposed to, and are thereby referred to as ‘externalities’. When it becomes impossible even for economists to ignore them, however, they can be ‘internalised’, but no methodology is available for determining how this ‘internalisation’ can be achieved. What is certain is that as economists are progressively forced to internalise biospheric costs, so does the economic process become even less viable. Janice Tait points out how this process has characterised the economic history of the last century:

“The history of nineteenth century industrial expansion can be viewed as a long and bitter struggle to internalise external costs. In Britain, the social upheaval following the Enclosure movement and the rise of the factory towns completely changed the lives of rural agricultural workers. Factory owners on the other hand worried about the cost of raw materials, plant and a cheap labour force.” [77]

Five-year-olds were particularly welcome in the mines where they could penetrate the narrower seams: women too because – you guessed it – they were hired for lower wages than those paid a man.

“By 1830, dispossession from the land, factory slums without amenities, and inhuman working conditions had brought Britain to the brink of social collapse. Certainly the price of goods such as bread, cotton cloth, dishes, went down; but the cost in terms of human well-being was devastating. These costs were externalised to society as a whole and paid for in innumerable ways: constant threat of cholera epidemics, overflowing public poorhouses, and a legacy of class bitterness that continues to this day. The history of the Labour Movement in Britain and elsewhere in the last 150 years has been an unconscious process of struggling to force producers to internalise the whole cost of maintaining a labour force in reasonably good physical health from birth to death.

“When industrial accidents became rationalised by the development of the Theory of Probability their status changed from that of miracles or ‘acts of God’ to predictable events. The comforting title of externality was then no longer applied to industrial accidents. Internalising the costs of diseases produced by industrial processes has taken longer because the causal connections of working with lead, coal, mercury, asbestos, herbicides, pesticides, PCB’s vinyl chlorides, taconite tailings, radioactive materials, etc. is harder to establish. But nevertheless, in principle, it is now generally acknowledged that the costs of industrial diseases should be internalised.

“Which brings me to the costs of environmental protection – the most aggravating of the externalities now waiting to be internalised. It is obvious that this internalisation is going to be at least as long and painful a struggle as the others. In the nineteenth century people were expendable; today birds, fish, animals, green space, trees, tundra, fresh water, clean air, arable land, oceans, perhaps even our life-support systems are being sacrificed at the altar of economic growth. Not only that, but we also plan to bequeath to our descendants, carefully wrapped packages of radioactive waste with a half-life of 10,000 years.” [77]

The result of adopting so totally misguided a system of accountancy is that for decades it has been possible to indulge in economic activities that caused the biological, social and ecological degradation with, it appeared, total impunity.

Needless to say the economists’ view of the production-consumption process is very misguided. Rather than occur in a closed system, it is a process directly affecting the biosphere, from which it derives the resources it makes use of, and to which it consigns the wastes it must inevitably generate. The technosphere, or world of human artefacts, which these resources are organised to constitute, is thereby parasitical to the biosphere. It is in competition with it. The expansion of the one can only be to the cost of the other. Economic growth can thereby only be regarded as biospheric contraction.

The more cities, factories, housing estates, airports, reservoirs, motorways, parking lots, even the more farms we carve out of the world’s remaining forests -the smaller must be the expanse and the more degraded the structure of the biosphere.

Since we are very much part of the biosphere, since, in fact, we evolved in our present form over millions of years so as to be biologically and socially as adapted to it as possible, the notion that we can destroy it, in order to replace it with the crude and rudimentary world of our own design and manufacture, must rank as one of the most preposterous notions ever entertained by man. Yet it is this notion that provides – implicitly at least – the rationale for the economic process to which all biological, social and ecological considerations are mercilessly subordinated.

What it is essential to realise, however, is that as the biosphere is methodically degraded, so must we incur corresponding biological, social and ecological costs. These were supportable for a long time, for our numbers were smaller, our activity on a more modest scale and of a less destructive nature. Today, this is no longer so.

We are, in fact reaching the point where the impact of our activities on the biosphere must, among other things, affect its ability to provide the materials required for the industrial process – the land, food, timber, water, fuels, minerals etc. Since the depletion of these resources does not constitute economic costs (that is until they are properly internalised), our accounts reflect their consumption at a price that is very much inferior to their replacement cost – which, in normal business practice is a sure road to bankruptcy.

Similarly, as the biosphere becomes increasingly saturated with ever increasing quantities of pollutants which we consign to it, so are the biological and ecological costs of pollution becoming translated into economic ones. Stunted plant growth, reduced fish catches, the corrosion of buildings, pollution-induced diseases such as cancer, together with the ever greater cost of the technological installations required to limit such damage, are beginning to constitute an increasing drain on a society’s resources – and must continue to do so as industrialisation proceeds.

One can see this occurring in Canada in many areas. Thus, according to the Science Council, ‘sulphur dioxide from Sudbury smelters has had widespread effects. Severe tree damage has been detected up to 30 miles from the emission sources; vegetation has been stunted within a 720 square mile area; and, in a ten year period (1953-1963), the loss in production of white pine in this area is estimated to have been $1, 717,000. Within a radius of up to at least 50 miles from Sudbury, there have been radical changes in the past decade in the acidity of the soft waters of the lakes. As the lake waters have become acidified, various species of fish have been exterminated; there are now no fish of any kind in at least 33 lakes, and soon they will be gone from at least 38 more. [78]

If one looked at accounts which figured the true costs of the Sudbury smelters – those that reflected the damage they did to all the different natural systems in their vicinity, and which would inevitably one day be reflected in economic costs to be paid partly by the company that caused it, but much more by others who have nothing to do with it – then they would look very different indeed from those that are audited by the company’s chartered accountants.

Eventually too, the disintegration of the family and the community – the basic units of social organisation – under the impact of all the urban stresses to which they are subjected in an industrial environment must also be reflected in a veritable constellation of pathological social manifestations – crime, delinquency, vandalism, drug-addiction, alcoholism, suicide and general demoralisation and helplessness, whose incidence must give rise to ever less supportable economic costs.

Eventually too, the increasing intrusions into the functioning of ecological systems must lead to corresponding economic costs. Thus, when the banks of the Mississippi River were narrowed and lined with concrete, and its flood-plains built on, ecological costs were thereby incurred. It may have been necessary to wait for a period of heavy rains for the river to burst its banks and do $400 million worth of damage, but it was simply a question of time for this to happen – for ecological costs, in fact, to be translated into economic costs. (79)

Such considerations should lead us to formulate what should be one of the basic laws of a new economics: All biological, social and ecological costs incurred by our activities must one day be translated into economic costs. They should thereby be considered from the start as long-term economic costs. This means that what our economists today regard as costs – those that are taken into account in the ‘cost benefit’ analyses on whose conclusions so many important decisions are based – are but immediate economic costs – the tip of the iceberg, so to speak -while the great bulk of costs incurred still linger beneath, waiting for the appropriate conditions to emerge on an unsuspecting economy, which, on the basis of accepted economic indices, appears to be in perfect health.

What is more, these costs differ from those we are used to taking into account in one important respect. As we shall see, they are, in the short or medium term, difficult – in some cases impossible – to reverse, except by phasing out the offending economic activity.

This has a dramatic implication – it means that a rise in the price of a commodity affected will not necessarily trigger off an increase in its supply, for rigidities have unexpectedly appeared on the supply side. Thus, if a country’s main sources of fresh water are polluted with DDT, or radio-active wastes or mercury, a rise in its price will not necessarily result in an increase in its supply, because there is no practical way of removing these poisons in the short or even medium-term.

If soil erosion and urbanization so limit the amount of agricultural land available that food production slumps, higher prices may not suffice to increase supply because the top soil that has thereby been destroyed may take several hundred years or more to be reconstituted.

An increase in the price of non-renewable resources, such as oil or minerals, would undoubtedly lead to an increase in their availability – at least for a time, since it would permit the exploitation of sources that were previously uneconomic. However – and it is this that is important – the price rises which may eventually be required to increase their availability will not be indefinitely compatible with a growing economy.

The same of course would be true, in many cases, for the supply of such basic commodities as fresh air or fresh water. Pollution-control measures which could provide us with these commodities would, in many cases, be so expensive as to render uneconomic the enterprises generating the pollution and thereby responsible for the shortages.

Let us look at the implications of this new situation. Economic growth has been based on the systematic substitution of capital and non-renewable resources for human labour. Why should this have been so advantageous? The answer is that it was cheaper. The possibility that it might, one day cease to be cheaper, and hence cease to be advantageous too, does not seem to have occurred to our economists. Yet, if the price of obtaining key resources increased sufficiently, while at the same time there were a surplus labour supply, because the economy was not growing fast enough to provide jobs for all those seeking to enter it, then a point would eventually be reached when it would cease to be economic to substitute resources for labour.

According to the law of supply and demand, when this occurs, the reduced demand for resources will cause their price to fall until such time as it becomes economic to use them once more. This would be true if the increased price of the resources were in fact reversible, as would be the case if it were due to the sort of inefficiency that occurs with the general euphoria of an economic boom. It is no longer the case, however, when the higher price of resources reflects the increased cost of extracting them from lower grade ores, or from less accessible areas, for it would no longer be economic to provide them at a lower price.

In many cases, resources may still be available, but this would be of academic interest only, for they would no longer be at an economic price, which would mean that, from the economic point of view, they would have ceased to be ‘resources’.

In the case of commodities that have been made totally unavailable as the result of an irreversible process we are faced with rigidities on the supply side. (The demand can go up but the supply cannot follow.) In the case of commodities made unavailable at an economic price we are faced with rigidities of the demand side. (The supply can go up but the demand cannot follow.)

What is more, it is not difficult to imagine the latter type of rigidity spreading fairly generally to affect all manner of capital goods. Why, for instance, would a company buy capital equipment if it becomes more economic to replace it with labour? Why too should a woman buy domestic appliances designed for saving a few hours’ work in the home when, to earn the money required for purchasing them she must work far longer every day in the factory?

The result of this increase in effectively irreversible costs is to create yet another situation which cannot be understood in terms of modern economics: a depressed economy with large scale unemployment and yet, at the same time, a high rate of inflation, previously only associated with an economic boom – ‘stagflation’, as it is coming to be called.

The truth of course, is that today’s inflation is different from any we have come across before. The price rises are increasingly due to resource depletion and the translation of biospheric costs into effectively irreversible economic costs.

Against such a problem, economic expedients that have proved effective in the past are ineffective. One can no longer reduce unemployment by expanding the economy as this, in the new conditions, is proving increasingly difficult and would, in any case, give rise to further inflation. Nor can one reduce inflation by further depressing the economy so as to reduce effective demand, as this would but further exacerbate the unemployment problem.

In the new conditions, inflation, economic depression and unemployment are the result of the same basic phenomenon: the increase in the cost of sustaining the industrial way of life.

This, in addition, has a further consequence: a constant increase in government expenditure reflecting the need to devote an ever greater proportion of GNP to combating the side-effects of the economic process, and to undertake an increasing number of functions that are no longer sufficiently economic for them to continue to be assumed by the private sector.

In the US, where there is no ideological commitment to expanding Government activities, Government expenditure nevertheless continues to rise regardless of the Government in power. In 1962 it was no more than 100 billion dollars, in 1977 it is expected to be 400 billion dollars, while at the current rate it will attain 574 billion dollars in the period ending 30 September, 1980. It is increasingly difficult for Government revenue to keep up with expenditure and the Government deficit is likely to go up at the current rate to a maximum of 77 billion dollars in 1980. [80]

In the UK, Government expenditure now accounts for nearly 65 percent of GNP. What is more, in spite of the fact that inflation is now regarded as the country’s most serious problem, all efforts to reduce this highly inflationary level of Government expenditure are being strenuously resisted.

As ever more money is required by the Government to provide the massive technological infrastructure needed to control the increasing deterioration of biological, social and ecological systems, one can easily foresee a time when there will be very little left to finance the production and consumption of consumer goods whose general availability is supposed to constitute one of the principal justifications for our industrial society.

As this occurs, so the price we will eventually have to pay for them will become prohibitive. Consumer foods and services whose general availability everybody now takes for granted would become luxury items, as many of them were in the past. Already in the UK we are seeing this happen, as every year less and less people can afford to pay their telephone and electricity bills.

Inflation without economic growth – stagflation can also simply be regarded as a measure of general impoverishment, and hence, as reflecting the fact that conditions are becoming ever less favourable to the industrial process.

In the UK, at the end of the eighteenth century, conditions were at their most favourable. The necessary natural resources were available from all over the Empire. There was no problem in getting rid of wastes generated by industrial activities. The rivers, the seas and the sky seemed limitless in their capacity to absorb them. There was no difficulty in finding markets for finished products. Britain had no competitors. She was the ‘workshop of the world.’ What is more, subject people could be forced, if necessary, to buy British goods. Britain killed the textile industry of the Indian villages so as to favour the export of textiles from Lancashire. She declared war on the Chinese when they refused to buy opium from British merchants in India.

What is more, and this aspect of it must not be underrated, the changing psychological climate was particularly favourable to the industrial process. As Weber [81] showed, the non-conformist world-view actually provided its rationale and led people to enter into it with quasi-religious fervour, while social conditions, as Hagen [82] has since pointed out, favoured the spread of these attitudes among the population at large.

Today, these conditions are ever less well satisfied. To sustain industrial society is an increasingly exacting feat. It is this that is reflected by the increasing costs of this enterprise – which we must now look into more carefully.

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