Friday, 27 May 2011

Community Centred Economy

In discussing a third model for economic operation, Daly and Cobb (1989) say that "central to Catholic teaching is the "principle of subsidiarity."" This means "It is an injustice, a grave evil and a disturbance of right order for a larger organization to arrogate to itself functions which can be efficiently by smaller and lower bodies" (quoted from Pius XI, 1931, p 80) (p 17). The higher society is designed to help the lesser or smaller society. The higher society serves the lower societies and not the other way around. The higher society isn't there to set the rules for lower organisations. Modern governments misunderstand their role.

Daly and Cobb also quote Edward Schwarz (1982) who says "Unfortunately, most leaders and writers today have forgotten these communitarian concerns of Jefferson, de Tocqueville, and early Americans in general. The irony is that a wide range of evidence is now affirming empirically what these traditional theorists could assert only instinctively. It now appears certain that a strong, local community is essential to psychological well-being, personal growth, social order, and a sense of political efficacy" (p 264) (p 17).

The foundation for a healthy society and economy starts with local communities. Economic reform also has to begin with the local community, not the national or global community. Daly and Cobb contend that Pesch (Mulcahey 1952) contended that human communities "are part of a larger community that includes the other creatures with whom human beings share the world" (p 18). This understanding reflects the principles of shalom.

The authors say that "Victor Furkiss describes our situation graphically: "Present-day society is locked into four positive feedback loops which need to be broken: economic growth which feeds on itself, population growth which feeds on itself, technological change which feeds on itself, and a pattern of income inequality which seems to be self sustaining and which tends to spur growth is halted, technology is controlled, and gross inequalities of income are done away with" (1974, p 235)" (p 21).

Interestingly, Furkiss isn't arguing to halt technology change rather he seeks to control technology. The focus on doing away with inequality reflects the view of the Equality Trust (www.equalitytrust.org.uk)

Misplaced Correctness in Economics

This section is interesting because of the style of argument. Part of the argument is that it is assumed supply will expand as the demand expands. For example as the rest of the world's consumption expands to be equal with that of the US, the production rate in the rest of the world will increase to match the demand (Thurow 1976, p 40: Daly and Cobb 1989, p 40). The difficulty is that if the demand is for a non-renewable resource can the rest of the world increase production simply because demand increases?

The reason for the fallacy is caused by abstractions used to develop arguments. Daly and Cobb say ""To abstract" means literally "to draw away from." We can draw away from concrete experience in different directions and by different differences. To expect perfect judgement is choosing the direction and distance of abstraction proper to each argument, and never to mix up levels in the middle of an argument, is to expect too much" (p 41).

The Market

Daly and Cobb say that they support the principles of the market although they question some of the assumptions. They contend that market economies with independent, decentralised decisions lead to spontaneous order (p 44). They say "The apparent paradox of individual freedom leading to social order also occurs with language. Individuals are free to try to communicate in whatever ways they wish. But to succeed they have to conform to certain community conventions. The result is not a Tower of Babel, but an amazingly well-ordered structure, as is evident in the grammar of any language" (p 44). The contention is that the market will also establish a set of rules of play that bring balance to the economy but the reality seems to be different.

They say "Individual consumers know their preferences better than anyone else and act directly to satisfy them in the marketplace. Individual producers know their own capacities and options better than anyone else and they too act on this information in the market. This essential feature of decentralized decision making is what permits all this knowledge to be used" (p 45). The argument is that individuals have better knowledge of the market than a centralised decision making body. This may be valid for certain knowledge but a producer doesn't necessarily understand the demands of the market. They supply what they think they can sell but this can lead to surplus and waste production.

Later they say "The economists image of a market is a system of voluntary exchanges made by the parties concerned only because all consider it to their advantage to engage in these transactions. What has so impressed economists is the fact that all participants in the market gain. But this vision abstracts from the real world in which everything that happens has much wider effects. In fact, market transactions have consequences that are not limited to those who choose to engage in them" (p 52).

But in the market economy, it is assumed that someone has to pay for indirect or external costs (pp 55-58). It is assumed that internalisation of these external costs will help the system balance. In some ways, this assumption assumes that all the external costs can be identified and internalised in the production process. As can be seen from manufacturing sites, we often haven't uncovered the effects of manufacturing until after the damage is done. How can these costs be accrued into the system?

Even Daly and Cobb say that the market "provides no answer to the issue of optimum scale" (p 59). They also contend that the market has difficulties where we don't have unlimited resources and at the same time, the resources are not the obvious constraint (p 60).

I also have some difficulty accepting some of the things that they seek to internalise. Some are to try and redistribute spending power. As far as I can tell the market has no way to increase or control the credit.

References

Daly, H. E., & Cobb Jr., J. B. (1989). For the common good: Redirecting the economy towards community, the environment and a sustainable future. London: Green Print.

Pius XI (1931) Quadragesimo Anno.

Schwarz, Edward (1982) "Economic Development as If Neighbourhoods Mattered" In Community and Capital in Conflict: Plant Closing and Job Loss, edited by John C. Raines, Lenora E. Benson, and David Mc.I. Gracie. Philadelphia: Temple University Press.

Richard E. Mulcahey (1952) The economics of Heinrich Pesch. New York: Holt.

Victor Furkiss (1974) The Future of Technological Civilization. New York: Brazilier

Thurow, Lester C. (1976) "Implications of Zero Economic Growth." In The Steady-State Economy. Vol 5 of US Economic Growth from 1976 to 1986: Prospects, Problems, and Patterns. Joint Economic Committee. Washington, D.C.: US Government Printing Office.

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