Economics as though People Mattered

New Ground 63
Summer 2002

A worldwide backlash against the narrow sterility of mainstream economics is giving a radically different view of how an economy works, and both people and the environment will benefit, says David Boyle

It is now two years since the economics students of Paris undertook an unprecedented campaign against the way the subject was being taught. The Post-Autistic Economics movement is now world-wide, but it has had most impact in France – where a cabinet-level inquiry has backed their demands.

In other countries, the students’ revolt, against the dominance of economic abstractions over reality and of statistics over real life, has split the profession.

The movement’s leaders at the Sorbonne, Gilles Raveaud, Olivier Vaury and Ioana Marinescu, may not have had much impact outside academia, beyond causing mild consternation among econometricians. But their efforts may mark something more important: a growing disenchantment with the assumptions of economics that have caused so much damage over the past century or more.

The problem with conventional economics is that, at its heart, there’s a lie. It’s the idea that we are all completely rational, all-knowing individuals who always maximise the monetary return to us in every given situation.

The result has been a situation where everything has been reduced to money, where anything not measurable in that way has become excised from the national accounts, and often concreted over, and where the idea of morality, of other kinds of wealth, has almost disappeared from political discourse. Which is pretty distressing, given that economics began as a branch of moral philosophy.

And one of the other peculiar effects is that a narrow idea of efficiency has governed policy-making. It is said, for example, that British agriculture is ‘efficient’ when fields and farmers are idle – even though they may be just round the corner from towns full of people who want fresh produce. Narrow economics believes it is more ‘efficient’ to truck the stuff in from a few thousand miles away.

In just the same way, the economy is considered ‘efficient’ when there are thousands of corners of it where there are people available to do work that needs doing, but no money to bring them together.

The New Economics Foundation began in the mid-1980s with a series of conferences known as TOES (The Other Economic Summit). These were dedicated to bringing economics more into line with the real world, mainly by innovating. Innovation allows you to sidestep entrenched views and find new practical and symbolic ways forward.

Those innovations include new ways that people or the planet can be accounted for by economists or business people. NEF’s innovations have included:

Developing social auditing. This is a practical way for organisations to assess and report on social impacts. It is now used by both blue chip companies like British Telecom and social enterprises like Windmill Hill City Farm.
Introducing sustainability indicators to measure local quality of life. These are used in over 100 UK neighbourhoods.
Creating new ways to generate volunteering and community exchange through the development of time banks.
Helping achieve $34 billion worth of debt cancellation for the poorest countries of the world, in the Jubilee 2000 campaign, set up by NEF director Ed Mayo and led by NEF’s Ann Pettifor.
Pioneering a radical new enterprise-led approach to regeneration, including responsibility for government initiatives for the Ł90m Phoenix Fund, a new Ł40m Community Development Venture Fund and a ground-breaking ‘community investment tax credit’.

NEF is not politically aligned, which has sometimes meant less attention from the mainstream media. But it does have a clear agenda – to put ethics and humanity back into the so-called rational world of economics so that it works for us, rather than becomes the kind of zero-sum game we so often end up with.

Often, that means setting up organisations then setting them free to do their own thing. Of the practical innovations unveiled at NEF’s first event, The Other Economic Summit in 1984 that led to NEF’s foundation, ethical investment, alternative economic indicators, local currencies and green taxation are now mainstream ideas in use all over the world.

The new institutions NEF has set up include Time Banks UK, UK Social Investment Forum, the Institute for Social and Ethical Accountability, the Ethical Trading Initiative and, in the past year, the London Rebuilding Society, London’s first community bank.

But the most urgent task is to demonstrate how local economies can somehow provide for local people’s needs, despite the narrow idea of efficiency that is impoverishing them all over the world.

Part of the problem is that it’s not how much money a community has – it’s how much it circulates and re-circulates locally that makes people wealthy. That’s the idea behind a major NEF project that aims to measure the way in which money circulates in rural communities.

Plugging the Leaks is a two-year research programme, funded by the Countryside Agency, which aims to find this elusive holy grail of new economics. It starts with pilot schemes in a food project, community business and market town to measure the impact of regeneration spending.

The programme will move on to bigger schemes that will track the impact on communities of welfare money and of spending on energy and fuel that normally sucks money out to distant utilities. The project uses the idea of a local ‘multiplier effect’, whereby money creates wealth because it is re-used, rather than sucked away to rich areas.

First results demonstrate that money spent on locally produced food generates almost twice as much income for the local economy as the same amount spent in a typical supermarket.

The author of the survey, Tim Boyde, who is a local resident involved in the Soil Association’s Food Futures programme, decided to measure the significance for Cornwall’s economy of sourcing and buying locally.

Tim spent two months tracking the finances of a Cornish vegetable box scheme, Cusgarne Organics, based near Truro. The study followed the trail of income to monitor exactly where its turnover was spent, how much was spent locally, what happened to this money at the next level of spending and so on.

The survey found that every Ł10 spent with a local food initiative is worth Ł25 for the local area, compared with just Ł14 when the same amount is spent in a supermarket. The same amount is worth more with local schemes because it stays in the vicinity, where its value increases as it is reinvested many times over.

This work shows that the way to revive the rural economy is not through big schemes and big names, but with small, but perfectly formed, initiatives that keep money local. The survey’s findings have also been a welcome boost to the Countryside Agencies’ Eat the View scheme that encourages consumers to buy local products.

This isn’t the whole answer. But the essence is that, despite what the international economy says, there are vital resources in impoverished local economies that don’t get measured by international money markets. In other words, we’re not as poor as we think.

The future is going to be about finding new economic tools – local currencies to local employment, from farmers’ markets to fair fuel taxation that actually covers the cost of road traffic – that can access those resources again and bring them back into use.

David Boyle is a senior associate of NEF, and the author of The Tyranny of Numbers.

See www.tyrannyofnumbers.co.uk