The Present Economic Order

Part II of the Edy Korthals Altes’ book Towards a Just and Sustainable Economic Development (Read Part I).

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In the Second Part of this book we have dealt with various aspects of spirituality. Here in this Section we will make an effort to translate spiritual values into the hard reality of economics. But before doing so we will take a critical look at the present economic order. A complex reality, showing bright and dark features. The impressive achievements of the economic order in the free world are incontestable. The free-market system – supported by a sophisticated infrastructure – is making an abundant supply of goods and services available. Well over 1.2 billion people benefit from a high standard of living and a considerable degree of individual freedom Technological developments have liberated millions of workers from the drudgery of hard labour. Life expectancy increased as a result of greatly improved food and health conditions. In the light of all these positive achievements it is understandable that ‘the North’ is exerting a magnetic influence on countless people living under less fortunate circumstances.

A closer look however reveals some serious flaws in the present economic order. It is neither just nor sustainable and moreover having a negative effect on the quality of life. All of these are – as we shall see later – the poisonous fruits of a perverted concept of economics.

Neither just…

The social situation in most modern states gives rise to serious concern because of the widening gap between rich and poor. Not only within nations but also between countries. In the United States of America there are more than 37 million people living in poverty (poverty rate of 12,7 %) The situation in the European Union is not much better: nearly 50 million poor and marginalized people on a total population of 450 million! These stunning figures for the most prosperous regions in our world should be seen in conjunction with the extravagant lifestyle of a minority. Whereas social security systems are under strong pressure there is a small group of people enriching themselves through extravagant salaries, bonuses and unethical practices. A substantial increase in profits and managerial benefits often goes hand in hand with large-scale dismissal of workers. This growing inequality within the prosperous nations should receive more attention than it is getting now.

The situation is unfortunately worsening as a result of fiscal policies and a widespread indifference among higher income brackets towards basic human values like decency and solidarity. The fair and just fiscal principle of charging according to the capacity to pay seems to be forgotten. Even governments in which socialists participate show a marked reluctance to address the problem of equitable taxes. The fiscal burden is shifting to the middle and lower-income categories. This negative development is greatly facilitated by large-scale evasion of taxes, fiscal loopholes, tax havens and deficient international fiscal cooperation.

The spectre looms of a society in which 1/3 of the people will be marginalized. The number of desperate people excluded from normal life is rising, especially in the big cities. Resentment is growing, if no effective measures are taken at short notice we will enter into a highly unstable situation with a rapid increase of violence, criminality, drug abuse and terrorism.

It would be a fatal illusion for governments and for those who are on ‘the safe side’ to think, that somewhat more discipline and extra security forces will preserve the status quo of law and order. A world divided in two classes – between those who count and those who are superfluous – is heading for serious conflicts. It will be confronted with acts of despair and violent protests. Democracy and political stability will be undermined. This perspective of disintegration is particularly threatening for societies with a high rate of unemployment among the younger generation and migrants.

In a just economic order all people should have adequate means to satisfy their basic needs and reasonable wants. This definitely does not mean the imposition of a rigorous redistribution of wealth and income in order to assure that everyone has the same. The principle of a reasonable relation between efforts and income should not be given up. But the present situation – in which a small group of people is laying hands on excessive revenues amidst many who live under straitened circumstances – is untenable.

From a global point of view is the situation even worse as anyone following the daily news can confirm. Since ample literature is available on the blatant injustice in this world only a few facts will be mentioned. About 3 billion people in 49 countries live in low- income economies (within a range from $80 to $730). More than 1 billion have to get around with $1 or less per day. At the same time about 900 million people in 25 countries enjoy a per capita income ranging between $9.700 to over $40.000 per year. Shocking is also the hypocrisy in matters of free trade. While the rich countries are lecturing others to open their markets they are imposing all sorts of trade restrictions on products from the poor countries! Highly damaging are also the large subsidies of the EU and USA on agricultural products.

Nor sustainable…

The present dynamic economic expansion and extravagant level of consumption in the prosperous North is not only unjust but also unsustainable. What should be kept in mind is that more than 80% of the actual global environmental problems are caused by the modern economies with their excessive requirements of energy and natural resources. The large scale deterioration of our natural environment does not only impair the conditions of life in the ‘North’ but is also causing even more serious problems in other regions, particularly in the poor South! In the first Chapter we have already given an indication of what is happening: global warming, climate change, dying forests, rapid decrease of bio-diversity, depletion of fish resources, excessive pollution etc. Non-renewable natural resources – built up in millions of years – are now consumed within a few decades. Last but not least unspoiled nature and silence – indispensable for a harmonious human development – are more and more difficult to find.

Industrial activities as well as intense mobility are not only depleting natural resources but also causing a severe pollution of air, water and soil. Dennis Meadows, the well known environmentalist, is warning that: “any activity that causes a renewable resource stock to fall, or a pollution sink to rise, or a non-renewable resource stock to fall without a renewable replacement in sight, cannot be sustained”. Useful is here the notion of the ecological footprint, defined by Meadows as: “the total impact of humanity on nature: the sum of all effects of resource extraction, pollution emission, energy use, biodiversity destruction, urbanization, and the consequences of physical growth.” According to Meadows there is strong evidence that since the late 1980s the ecological footprint of global society has overshot the earth capacity to provide!

For a long time people presumed that the resources of the earth were infinite. The small number of inhabitants and their low impact on environment did not cause great problems for thousands of years. Indeed, the regeneration capacity of nature and the climatic conditions were not endangered through human activities. This situation has changed dramatically as a result of the spectacular increase of the world population and above all by the revolutionary expansion of production and consumption patterns. Since the UNCED Conference on Environment and Development ’92 in Rio de Janeiro, nobody can any longer ignore the seriousness of the present situation. The world is indeed falling into an ever-deeper ecological crisis.

The determination of the industrialised countries in pursuing permanent material growth will inevitably lead to environmental suicide and violent conflicts over scarce natural resources. The ‘North – with about 20% of the world population – is already now responsible for about 80% of the ‘ecological footprint’. Thus leaving for the overwhelming part of the world’s population – in urgent need for development – less than 20% of the world’s renewable and non-renewable resources! Do we in the North really think that we could enlarge our share still further? The critical situation we find ourselves in will even worsen if the expected rise in world-population sets through.

Governments however remain reluctant to draw the consequences of this state of affairs. Apparently they are still hoping for some sort of miracle that will solve the present crisis. A rather naive, yes even irresponsible, attitude if one knows that, within the next 20-30 years, drastic changes will have to be made in order to head off a total collapse of the present system. Indeed, we have entered into a dangerous situation of conflicting interests. Prosperous nations determined to grow further while the vast majority of developing countries are eagerly trying to copy our model of development! Already now has the spectacular economic development in China and India (roughly 2,5 billion people) a substantial effect on global environmental conditions.

It should be clear that a further increase of the ecological footprint of the North together with the persistent drive for economic development of several billion people in the poor South would put a crushing burden on our planet.

The unjust and unsustainable development is creating a high potential for social/political conflicts and environmental disasters. We actually live – as we have seen before – in the presence of three immensely potent time bombs, each one capable of destroying our civilisation. Though public opinion seems to ignore the nuclear threat it will be more difficult to close our eyes for the imminent threats of the social and ecological time bombs. Practically no day passes by without confrontation with hard facts.

Sustainability – according to the Brundtland Commission – is an economic development in which the needs of the present generation are met without impairing the possibilities of satisfying the needs of future generations. In view of the confusion around this concept I prefer a definition, which is more precise and closer to the thinking of the World Council of Churches (WCC). “Sustainability is the capacity of social and natural systems to survive and thrive together, indefinitely”. This is indeed a worldwide concept with economic, ecological and social dimensions, all of these closely interrelated and complementary. By now it should be clear that the need for sustainability requires a shift in production and consumption patterns from the modern economies. How else could there be hope to keep the global demand for renewable and non-renewable resources within acceptable limits? A greater emphasis on qualitative instead of quantitative growth would also reduce the negative impact on the environment.

This is a necessary development if we want to halt the present degradation of the environment and create the required eco-space for countries in need of economic growth. Certainly, part of this could be achieved by new technologies reducing waste of resources and energy. Another interesting possibility is offered by increasing immaterialism in production, already now forming a substantial part of the GNP. But all these lines of action do not eliminate the need for a substantial moderation of consumer demand for material goods. This however is not likely to occur without a marked shift of attitudes among consumers.

Between a just and a sustainable development exists a close link. A just economic order, not respecting environmental limits, makes no sense, as -sooner or later – the basic conditions for life would be destroyed. Moreover it could never pretend to be just as vital interests of future generations would be sacrificed in order to satisfy the consumer demands of those now living. Likewise it will be difficult to imagine a sustainable economic development without justice. For those who are pushed to the margin it would be hell. An unjust society is therefore unsustainable; it will ultimately be destroyed as result of social tensions.

A negative impact on the quality of life

The dominance of economics is one of the striking features in modern society. Practically no sector is immune for its onslaught. Basic humanitarian values like respect for life, justice, solidarity, moderation and decency are under great pressure in a society in the grip of money, profits, competition and extreme efficiency. This imbalance between the spiritual and material aspects seriously impairs the quality of life, making it more and more difficult of achieving real fulfilment.

Unmistakable is the tendency of hardening in modern society. Among the negative signs are:

• A serious decline in the cultural climate resulting from the emphasis on the material aspects in life. The imbalance in our culture manifests itself in many fields. One of the sectors where this comes out clearly is education. Subjects like technology, economics and other subjects relevant for economic growth are actively promoted at the expense of history, languages and philosophy. Schools and universities tend to be more and more product- and result-oriented. They have to be ‘relevant for the economy’ even when this goes at the cost of coming generations. The slogan, ‘knowledge is chip‘, seems to be the highest wisdom for politicians and some educational authorities. How could we ever hope to manage in a responsible way the colossal power in our hands without giving more attention to those subjects, which could provide guidance?
• The high risk of stress in a hectic modern world, caught in an ideology of ‘time is money’. Family life and other human relations are often under heavy strain, especially when both parents are working in order to earn a ‘reasonable income’. This often results in psychological disorders and marriage-problems.
• The impoverishment of human relations resulting from the drive for ever more efficiency and cost-effectiveness. The calculating spirit inevitably brings about a certain aloofness, which is particularly hard to endure for the old, sick and handicapped. Social and medical care is subject to progressive deterioration.
• The incalculable suffering of an appalling number of victims in traffic accidents owing to an excessive degree of mobility, irresponsible behaviour and deficient regulations. Material damage is running in the billions of dollars as a result of accidents and lost working hours during traffic jams. In addition to these human and economic ‘costs’ comes the environmental damage caused by intense traffic. Does a rising car production really contribute to a greater well-being?
• The notable deterioration of public services as a result of large-scale privatisation of public services. The negative consequences for citizens in many countries are obvious: less service at a higher price! The public has by and large – with remarkable little resistance – accepted the not so subtle change in emphasis between ‘public service for all’ and ‘profits’ for a limited group.
• The disastrous influence of an unrelenting process of commercialisation on the media. Quality and educational-programmes are hard to spot amidst entertainment programmes in which vulgarity and banality compete with each other. The money value of a programme is all what counts. The result is an overwhelming supply of trash and filth, bound to have a negative influence on future generations.
• The degrading influence of commercialisation on sports. Players, fetching exorbitant prices are literally sold to other clubs, a modern form of slavery. The listing of football teams on the Stock Exchange gives another indication of what is happening in the world of sports.

The dance around the golden calf

Our modern world is mesmerised by the dance around the golden calf. A calf with greedy eyes, commanding everyone to consume more and more. In trance everything should be sacrificed in the name of the iron laws of the market: social standards, natural environment, human relations. Yes, even the Sunday as a fixed day of praise and rest in a hectic existence! What communist regimes did not succeed to abolish in nearly seventy years is now achieved in a few years in western European countries. Nearly everything is considered from an economic and financial angle. Profits and competition are the key words whenever crucial decisions have to be made. The moral imperative to act as responsible stewards of the earth is relegated to the backbenches. On the European scene it is depressing to note that the Brussels machinery in concert with the EU member states is taking part in this frenzy. Also former communist states do their utmost to catch up with the now so popular tunes played by capitalist pipers. Yes, even churches are not immune for the flat, materialistic tones. Some of them are so secularised that they do not perceive the wide gap between the Gospel and the present materialistic culture.

It will take some time before a new vision on a fuller life, in which quality counts more than quantity, sets through. For the moment it seems hard to offer a perspective to the millions now trampled or kicked out during the frantic dance as unemployed or marginalized. But before attempting to break the spell of this fatal dance, we should take a look at the mechanism behind it.

The driving forces behind the economic mechanism

The mechanism behind the dance around the golden calf looks solid and won’t give up easily as it is guided by three closely interrelated myths about:

• Man’s unlimited material needs
• The necessity of permanent growth
• The idolatry of a free market

These stubborn myths constitute the driving force behind the present economic dominance. Fortunately there are – as we will see next Chapter – strong arguments for a process of demystification.

Unlimited material needs of man?

The misleading notion that man has ‘unlimited material needs’ is the cornerstone of our economy. Nobody is supposed to question this concept. Vigorous growth of consumer demand is considered to be the oil for a dynamic economic life. It is supposed to be good for profits, producers, shareholders, managers and workers, in short for the whole society. Great efforts are therefore made to assure an ever-rising consumer demand. Considerable funds are spent on aggressive advertising and publicity in order to enhance mode consciousness and the creation of demand for all sorts of essential and non-essential goods and services. A relentless, irritating campaign on TV and other media intrudes daily in our private sphere. Young and old are constantly indoctrinated with vain promises of a better life whenever a particular product is bought. This obsession to consume more and more is, for our prosperous part of the world, not only immature but also highly irresponsible.

The myth of permanent growth

The permanent growth ideology, another sacred cow, is venerated with the same respect as her twin sister, called: ‘endless needs’. Mainstream economists still believe that permanent material growth is indispensable for employment and prosperity. They also assume that only growth could provide the financial means for environmental- and social policies.

The idolatry of a free market

Since the collapse of the communist system many people are in a state of euphoria about the blessings of the free market system. The market is considered to be the ideal place to bring demand and supply of goods together. An invisible hand is supposed to guarantee the greatest happiness for the greatest number of people. Although there is no doubt about the considerable advantages of the market-economy over the communist system, its manifest shortcomings cannot be left unmentioned. In the next Chapter we will take a critical look at these myths and raise the question whether these are still tenable in the present world.

Globalization is it a blessing or acceleration on the road to chaos?

Globalization is – according to a definition of the OECD – the process in which the interdependence of markets and production in various countries grows as a result of the dynamics of trade in goods and services, and movements of capital and technology. A broader definition of the World Bank includes also the need for collective action in order to deal effectively with world environmental problems. The dynamics of the globalization process in past decades have greatly intensified the impact of the driving forces behind the economic mechanism on the living conditions of people everywhere on the globe. Those believing that the neo-liberal system holds the key for an ideal economic development eagerly embraced the three myths on: unlimited needs, permanent growth and a totally free market. The urge to make money served as effective glue for holding them together.

Globalization is not in itself good or bad, all depends on how it is managed. For some countries in East Asia it has led to a substantial improvement of the living conditions for millions of people. A result that could only be achieved by adapting the rules of the game to the requirements of the country involved. For others – particularly the poor – it was an unmitigated disaster! Stiglitz, the renowned economist and Nobel laureate, did not mince his words when he wrote: “Globalization today is not working for many of the world’s poor. It is not working for much of the environment. It is not working for the stability of the global economy” He was also highly critical about the transition from communism to a market economy which: “has been so badly managed that, with the exception of China, Vietnam, and a few Eastern European countries, poverty has soared as incomes have plummeted.”

Among the negative consequences of globalization should also be mentioned the destruction of traditional cultures at great speed. The ‘consumption culture’ is spreading its own values to the remotest corners of the world. Fixation on private gain and the practice of financial calculation are rapidly replacing long cherished moral values.

Removal of barriers to free trade and closer integration of national economies can be a force for the good, it has the potential to enrich everyone in world – also the poor. But forcing a developing country to open its markets can have disastrous consequences. Not only for workers in industries not yet in a position to compete with much stronger foreign companies but also for farmers in developing countries who see their markets inundated with highly subsidized products from Europe and America.

The World Trade Organisation (WTO) – under pressure of the highly developed economies – is pushing for deregulation. The result is that even markets in the remotest corner of our planet are exposed to the full thrust of powerful economic forces. This strong drive for worldwide access to markets is an important aspect of the globalization process. Another factor is the vastly increased mobility of capital, greatly facilitated by revolutionary developments in communications- and information technology. Huge capital transfers, – decided upon in the board room of a London or New York office – can have an immediate harmful impact on the lives of numerous people located thousands of miles away. Uncontrolled financial movements of vast dimensions are now a daily phenomenon. Actual speculative capital movements stand in no relation whatsoever to normal transactions in goods or services. Premature capital market liberalization has been an important factor in the increase of global instability. All these operations constitute a permanent threat for currencies, stock exchange and above all the well-being of countless people.

International management of the globalization process

The high degree of freedom in the movement of capital, goods and services is not only creating a problem for the poor but also for the rich countries. Modern means of communications enable corporations to take advantage of the big discrepancy in wage levels between countries. Even traditional European corporations like Siemens are considering the relocation of part of their production to Eastern Europe or Asia if the labour costs in Germany cannot be brought down. The growing importance of outsourcing is another reason for concern about reduced employment opportunities for qualified workers. Corporations are in a global market under continuous pressure to reduce costs. An abundant supply of highly qualified labour in several Asian countries at a fraction of the costs in Western nations makes this possible.

There are therefore good reasons both for poor and rich countries to insist upon a careful international management of the globalization process. Advocates of total free trade tend to disregard the magnitude of numbers: while nearly 1.2 billion people are living in high income countries there are roughly 5 billion people surviving on a low subsistence level. China and India together – with more than 2.5 billion people – are both in full development. These countries are in a position to offer products at a fraction of our costs.

To think that this competition will be limited to simple products ignores the strong motivation to make progress of countries with a high intellectual potential. Total free trade not only affects millions of poor people in the world but carries also the risk of pauperisation of modern societies! Neither protectionism nor full-fledged liberalization will help us to chart the road towards a just and sustainable economic development. The challenge in coming years is therefore to find a responsible balance between the legitimate interests of the developing world and those of the modern world!

The power of multinationals

Multinationals dispose since decades over a large freedom to operate on the world market. Few governments are in position to ignore their wishes and international control is deficient. Unchecked power however creates an unhealthy situation it opens the way for an abuse of strength. As individual nations are unable to control trans-national corporations there is a real need for developing countervailing power on an international scale. To a certain extent this could be achieved by strengthening international rules and institutions. Of no less importance would be the development of a Global Ethos. Here, religions – together with non-governmental organisations – could play a constructive role. A positive development in this direction is the growing sense of public responsibility among multinationals. The popular slogan: ‘people, planet, profit‘ is indicative for this recognition of corporate responsibility. In this connection attention should be drawn to the initiative of Royal Dutch Shell to develop a code of conduct for its national managers. Mention should also be made of the activities of the Inter Action Council. But all these positive developments in the field of Business Ethics should not let us forget that many shareholders are still reluctant to accept the more responsible concept of stakeholders! The profit motive, shareholders and other ‘ultimate interests’ of the corporation remain potent factors and therefore a source of permanent tension with human rights, social and ecological considerations!

Human unity – an ecumenical vision

One of the negative aspects of globalization is the fragmentation of societies and exclusion of a growing number of members of the human family. The prevailing concept of globalization as creating one world – fostered by trans-national and worldwide structures of economy, finance and communication – stands in marked contrast to the vision of human unity as advanced by the ecumenical movement.

The former Secretary General of the World Council of Churches, Konrad Raiser, stressed in his Report to the Central Committee:

“…Globalisation is increasingly being turned into a political project. In fact, the present extent of globalisation, rather than being the sheer manifestation of historical necessity, is to a large degree the consequence of deliberate decisions on the part of governments, reflecting the neo-liberal economic theory. The goal of the globalisation of markets increasingly replaces the search for a viable order of world community. The call for the liberalisation of capital movements, for the deregulation and privatisation of social and economic systems and for the expansion of free trade is considered the only valid response to the processes of globalisation on the national and regional levels. This project has been given the status of unquestioned truth by the policies and actions of the international financial and economic institutions – the International Monetary Fund, the World Bank and the World Trade Organisation…. The dramatic and destructive effects of these policies of globalisation are before our eyes: they have led to an unprecedented concentration of power and wealth in the hands of a small minority, thus widening the gap between rich and poor both within and between countries.”

This disquieting situation demands new questions and new approaches from churches. In a publication of the WCC on the eve of its World Assembly in Harare some of these are raised:

“As the forces of globalisation put on the cloak of ‘internationalism’ and even of ‘ecumenism’, how can the church, the one body of Christ, make its understanding of universality heard? How can the ecumenical movement manifest in social and political terms the unity given in Christ and the sovereignty of God over all human powers? How is the moral voice of the church to be used in the face of such widespread economic, cultural and political immorality?”

In conclusion

The process of globalization cannot be halted. Its dynamic development will continue, pushed on by powerful economic- and financial forces. These factors, together with a highly advanced sector of information – and communications are opening the doors to a global world. What can and should be done is to subject the process of globalization to strict rules. In other words, to place it in a context determined by humanitarian, social and environmental considerations. Of great importance will also be a more democratic and transparent management of international institutions such as the World Bank and the International Monetary Fund.

Economic growth is for the poor countries an essential condition for the improvement of the living conditions of millions of people. But the same cannot be said for the rich countries. Here a different type of non-material growth should be envisaged. It is about time that the prosperous countries should free themselves from the obsession that one has to go all-out for getting more and more in order to achieve fulfilment. Real fulfilment in life does not depend on material factors but on our inner disposition, our own spirituality!

The present way of running the economy on neo-liberal principles is a sure recipe for disaster. Our economic order is neither just nor sustainable. Moreover it has a negative influence on the quality of life. The common link between these three elements is human hubris. But this denial of transcendence, this so-called ‘liberation of man ‘, did not contribute to a better development of his faculties. On the contrary, it has lead to a narrowing down of the human possibilities. The ‘death of God’ left an empty space, which was soon occupied by newly self-created gods such as: unlimited material needs, permanent growth and idolatry of the market.

For clearing the way towards a just and sustainable economic order it will be indispensable to develop a new look at economics. Economics should no longer be seen as a goal in itself but as an instrument to serve the common good. Without a spiritual renewal this will be hard to achieve. Decisive will be the rediscovery of our responsibility towards God and our fellow man. From here will sprout a new relation to man, material goods and nature, thus to economics!