Breaking the vicious circle

Now imagine a different scenario: one in which everyone who wants to work is permitted to make a contribution to the process of wealth creation and is paid according to the true value of their labour. They spend their earnings on wealth created by others, and the circular flow of money between production and consumption remains steady. Increases in productive efficiency are still made, but the benefits are distributed among the workforce either as increased wages or reduced working hours.

Finance for capital investment is sourced, not from profit-seeking banks, but from the savings of employees deposited in mutual societies. These same employees reap the benefits of their investment and are incentivized to maximize profits by developing new and innovative ways to combine their labour with newly acquired capital. Imagine the sense of meaning and purpose that people would feel.

“The rich are getting richer at the expense of the majority who actually do the work.”

These contrasting scenarios show how an economy configured to over reward those who make only a marginal contribution to wealth creation has to exclude a large section of the population. In order to survive, today’s economy requires relentless, unsustainable growth. The alternative is an economy in which rewards are distributed in proportion to the relative contributions to wealth creation. An economy where the bulk of business revenue is paid as wages to those who create the wealth, is an economy that doesn’t have to grow endlessly.

By late 2011, the share of US national income going to pay wages had fallen from a post-war high of sixty-three per cent to fifty-eight per cent. If the higher figure had been maintained, the average worker today would be taking home around $5,000 more each year. The rich are getting richer at the expense of the majority who actually do the work. In doing so, the rich have created an economy which denies life chances to millions.

There’s a name for the alternative economic scenario, coined by the economist Herman Daly and used as the title of his 1977 book, The Steady State Economy. Daly describes this alternative scenario: “Steady state economics channels technical progress in the socially benign directions of small scale, decentralization, increased durability of products, and increased long-run efficiency in the use of scarce resources.” The requirement for ‘long-run efficiency’ in the use of scarce resources is what makes Daly’s contribution to economics so important. A steady state economy is the antithesis of the current growth model, which completely (and deliberately) ignores the need to conserve the planet’s resources. Instead of accounting for long-term social costs like pollution, it externalizes them, leaving future generations to pick up the bill.

Current economic arrangements also dictate that too much resource and effort goes into producing non-essentials for people who already have all they need, while insufficient wealth is created in the forms required to satisfy the basic needs of the poor. The process of wealth creation has been hijacked to produce an endless supply of gadgets and luxuries for the well off. Meanwhile, millions go hungry, suffer inadequate housing and have no access to health care. The fixation with consumption would gradually diminish in a society that valued real work and understood the true nature of wealth and wellbeing. Such a society would also recognize that real social justice demands the inclusion of all who want to work, and create conditions in which that goal can be achieved.

Excerpt from Four Horsemen: The Survival Manual by Mark Braund and Ross Ashcroft.

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