Over the past 300 years, humanity has succeeded in pulling itself up by its bootstraps, establishing wondrous scientific projects and creating the technology and production lines that allowed us a glimpse of a bright future liberated from want. Nevertheless, the same path has led us to the edge of a precipice from which we are staring into a hideous abyss.

 

The key to rapid growth was a word beginning with C: commodification - the conversion of goods into commodities and their mass manufacture for profit. With the determination of an unscrupulous invader, for 300 years the market has been colonising more and more realms of human activity. It created new assets, like ingenious new forms of debt, and it fully conquered the Manufacture of Things. Then, more recently, it penetrated areas that it was ill equipped to treat with the due respect. It crossed several bridges too far.

Commodification entered the microcosm, altering the DNA of organisms in order to claim property rights over creations of age old evolution, of magnificent rain forests and of long lived communities of farmers. Soon commodification will take over the moon, even the sun, if it can. Once its greatest weapon, property rights, could no longer be secured by strong fences, but rather required innovative, complex contracts, humanity entered new, treacherous, uncharted territory.

 

Two great thinkers and their great errors 

 

In 1991, humanity was taken aback by one surprising major upheaval. The collapse of a non-market, authoritarian type of industrial society the death of which proved that markets for well-defined, material, things are indispensible. For colourful clothes, decent cups of coffee, desirable cars, gizmos that open up new landscapes of pleasure. It unveiled Marx's error: "To each according to her needs" makes for a grey existence and, moreover, requires that someone else is entrusted with the role of second guessing what these individual needs are.

Alas, at the moment of the market's final triumph, in 1991, rumours of history's passing were greatly exaggerated. The vengefulness of markets was biding its time. It unleashed itself 17 years later - in 2008. Capitalism, the ultimate C-word, came belly up 2 years ago. State power came to its rescue but what we now have, in our exciting post-2008 world, is not capitalism. Arguably we live under a new type of regime: Bankocracy or to greekisise it, Trapezocracy.

Just like 1991 unveiled Marx's error, 2008 exposed Adam Smith's folly. The great C- process, the commodification drive, gave rise to a sorry litany of other C-words that have darkened our prospects and browned our planet. Three Cs that capture our collective shame:

CREDIT CRUNCH

CARBON

COPENHAGEN

 

The past two years have destroyed our fig leaves. From now on, business as usual would be a fast track to a multifaceted ruin. Today, society is breeding a troubled generation.

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  • The Generation of the 10s, created by 2008 just like the Generation of the 30s was created by 1929.
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  • A generation with nothing to look forward to but a Browning Humanity
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  • A Crisis of Our (Collective) Making which cries out for a collectively argued and implemented solution. 

 

On the present confluence of the current economic and environmental crises

 

This is the juncture we find ourselves at today.

What kind of solution can we fashion?

How can we rise to the occasion bringing about catharsis?

Are our best laid plans likely to prove catastrophic?

 

I submit that yes we can, as someone once said relatively recently, before going back on his word. But not unless we tackle some awful demons first.

Let us be more precise on Adam Smith's error that 2008 revealed. Yes, markets are indispensible for producing and distributing things. But they are awfully bad at creating and distributing ill defined assets. When humanity leaves to the market assets like real estate, human labour, collectively produced knowledge, finance, debt, our genetic make up, rivers, lakes, the atmosphere, the great oceans, the environment in general, we are courting catastrophe when leaving all that to the markets to nurture and to value.

And when society tries to overcome 'market failures' by creating more artificial markets, it elevates the problem onto a higher level where it becomes more problematic, more dangerous, more pernicious. The end result, as the present moment in history shows, is both inefficient and illiberal. We have ended up living in a world in which nothing pays like grand failure. Wall Street and the City of London are just only one possible example.

 

REAL ESTATE

 

Do we need to say more? The utter stupidity of a world that spends its time, energy and money borrowing to the hilt to 'buy' houses in order to sell them again at 'profit' is quite self-evident. Nothing needs to be added. Except, of course, to point out that this type of activity has traditionally led whole societies (and in 2008 the whole planet) to a crisis of its own making which (A) condemns whole generations of real people to their societies' scrap heap and (B) renders the possibility of reaching an agreement on Climate Change and other environmental challenges more remote than ever, on the flawed basis that at a time of crisis other concerns take priority.

 

FINANCE

 

Commodification and unfettered financial markets pushed finance's share of US income from 6% in 1971 to 42% in 2007. It also inflated the value of derivatives from 70 trillion in 2000 to almost 700 trillion in 2007. The planet was just not big enough for the world of free market finance!

The result is that, once that bubble blew up, the planet's physical needs were no longer considered important enough. Saving the banks took priority!

 

PHARMACEUTICAL PATENTS and GENETIC CODES

 

The TRIPS agreement of the mid-1990s, standing for Trade-Related Aspects of Intellectual Property Rights, bundles together Films, Music, Software, solar technology, Pharmaceuticals & Genetically Modified Organisms or Seeds. Thus it grants the multinationals the right to charge high mark-ups, regardless of whether the product is a DVD, the formula for a life saving drug or a seed that was previously bred by generations of Polynesian or African farmers before it was slightly modified in the lab. Look at the incentives of it all, that word economists love: Our institutional setting is

• Telling multinationals to ignore malaria and to invest in tooth whitening, since mark ups are more likely to come from the latter. It is motivating pharmaceutical manufacturers to indulge in disease-mongering in the West while turning a blind eye to diseases that kill millions in the South

• It is rewarding life saving innovations by egging monopolies on to restrict their dissemination! It is ensuring that solar technology inventors maximise their rewards by restricting the utilisation of their new solar technologies.

As Dr Spock would have said in Star Trek, "It does not compute Captain!"

 

MEDICAL RESEARCH

 

Until the 90s most medical research was conducted in Universities. Today 70% has been privatised. The new commodity is the ready-to-recruit patient. An Eastern European or jobless American who becomes a guinea pig in exchange for either money or treatment. A process of commodification which created a system where a private doctor makes more money recruiting a patient for a trial than treating her. A Business Model from Hell.

 

Climate Change: The way forward? 

 

Do you know the one about the bus that is falling off a cliff? Of all the passengers, only one does not panic. Guess who it is: The faithful economist touchingly convinced that, well before the bus hits the ground, the laws of demand and supply will have equipped everyone with a parachute.

If we were to discover that a Comet is heading toward Planet Earth, and that it would devastate us in 30 years, would we leave it to the market to provide a solution?

Would we utilise mechanism design and game theory to engineer a new market that would 'incentivise' entrepreneurs to do something about it?

Or would we scramble NASA, the Russian and Chinese scientists, the world's nuclear arsenals to do something about it?

Well a Comet of sorts is heading toward us. Climate Change, the Acidification of the Great Oceans, the Increasing Toxicity of our Air and Water; the list is endless. We need a proportionate response. One that does utilise the markets where possible but one that transcends them in crucial ways.

Humanity, to put it frankly, needs a new Human-Genome cum Apollo cum Manhattan Project the purpose of which ought to be to produce technological solutions that are sorely missing. All sorts of gizmos will result from it and markets will make good use of them. But the basic business of saving humanity cannot be left to the markets. It is not merely a matter of regulation of markets. It is a matter of bypassing markets and creating alternatives to them where needed.

Why bypass markets? Indeed many claim that the solution to global warming ought to be market-based. Most of my economist colleagues argue, for instance, in favour of an Emissions' Trading Scheme. That is, for the creation of a Market for Bads, as opposed to goods. The idea is also called cap-and-trade. The number of permits to produce CO2 is restricted and goes down year by year. That's the cap. The permits can be sold, hoarded or used. That's the trade. The permits can be, for instance, sold by government or the EU in an ascending clock auction, where prices rise, say by a dollar an hour, until enough bidders withdraw, so that the number of permits sought is less than the number on offer. This is, I submit, a recipe for disaster!

Why? Because we will be creating a new derivatives market. Bankers, like Goldman Sachs, will be feasting in the creation of new private money backed by the taxpayer. Meanwhile no one will be able to predict the prices of these new bads and the derivatives founded upon them. Bubbles will inflate. They will burst. They will re-inflate. Every time there is an auction, headlines will appear like 'State to run out of electricity because supplier has no permits'. 'Carbon permits force manufacturer offshore'.

With every such crisis the public will turn hostile. A mighty new alliance will appear against such controls over pollution: An alliance between, on the one hand, the oil, coal and car giants and, on the other, broad swathes of disaffected people who hate government and hate the banks. This is precisely what happened in Australia in 2010: Mining companies stoked public anger against banks to form an alliance to overthrow Kevin Rudd, the hapless PM who had backed an ETS.

Market based solutions to climate change will create a Tea Party in every country, a regressive coalition on every continent. The only way of greening humanity is by means of a Grand Human Genome - Apollo - Manhattan Project. One that will produce the technology necessary to tackle climate change, the oceans' acidity, malaria, HIV and all the scourges that must be made history. A Multinational Scientific Project in the context of which each country will participate according to its capacities and to the sensitivities of its electorate.

This is exactly what we would have done if we spotted a menacing Comet on a collision course with Earth. We must do likewise now. Such a large scale project will have amazing spin offs that markets can then develop into profitable lines of useful products and fancy gizmos. But its running and the knowledge that it produces must and can only be a public good whose value is incalculable.

Taxation will have to be part of the project, both funding it and also helping reduce, in the meantime, our wasteful activities. Rather than an ETS, we must implement carbon taxes starting at say $10 per tonne of carbon dioxide in 2010 and rising in equal steps of $5 per tonne per year to say $40 per tonne in 2016. This is a clear price signal. It kills uncertainty. It prevents more bubbles.

 

Liberalism versus Genuine Freedom

 

Some liberal-minded readers may well ask:

Is this narrative not a direct threat to the idea of private property? And thus to liberty?

As I mentioned before, 1991 proved that free trade in things is indispensible. However, the private property analogy breaks down when we go from things to ill defined assets. It is not just that markets of ill defined goods are inefficient. It is also that they are illiberal.

Consider a patent on seeds or the genome or medicine. TRIPS (and the current regime of property rights) treats as equally inaliable your property rights over your mobile phone as those a multinational over a recipe for an HIV drug that has the power to save millions. The point here is that the status quo is not merely allowing one to enjoy a recipe one created but it grants one the right to prevent others from alleviating suffering. I do not think that liberal or even libertarian principles can support this.

And what about the accusation that I am proposing central planning? Well, here is an idea I poached from Thomas Pogge (Professor of Philosophy and International Affairs at Yale University). One that proves that collective agency need not mean central planning of research. Pogge suggested and is experimenting with the Health Impact Fund. A fund toward which many concerned governments, charities and NGOs may contribute with a view of attacking, say, malaria. Pharmaceutical companies sign up to it and extract from it a percentage of its funds that is analogous to their effectiveness in alleviating suffering from malaria.

Who measures their effectiveness? The medical community on the ground does! Notice how the companies, for the first time, have an incentive to minimise malaria-induced suffering, rather than secure monopoly power that cannot give them enough profit given that malaria sufferers have next to no spending power.

 

Humanity's two mortal enemies

 

None of this will, naturally, be easy even if perfectly sensible and true. Two dependable foes can be counted upon to stop any progress in looking after Nature and Humanity in a reasonable manner. One goes without saying:

Special, vested interests

Pharmaceutical companies, the energy industry, car manufacturers, etc. etc. An avalanche of lobbying is sure to snow under any politician who adopts these ideas.

The second foe may surprise you:

Economics and economists!

My assertion (which, given that I am writing this as a practising economist) is, this: Economics is to the world what derivatives were to the financial sector: Highly toxic theories whose evolutionary fitness is inversely proportional to their capacity to illuminate really existing capitalism.

If you look closely at any complete economic theory, you will discern an Inherent or Systematic Error at its heart. Adam Smith, economics' founding father, saw it clearly when trying to square a theory of value with a theory of growth. He understood that it could not be done while retaining enough complexity in the analysis to render the theory relevant to a growing market society.

Of course, what passes today as economic science has little to do with Adam Smith, emerging as it did some time after the 1870s. It began with an audacious strategy of bleaching the individual agent of the last morsel of psychology, ethics, politics or ambiguity. Why? As the price for creating mathematical models which might, at last, tell a consistent story about values and growth. Poor Homo Economicus ended up a pathetic creature unable to resist the slightest chance of a net utility gain. A Foole who did what he wanted and wanted that which he did.

The resulting narrative prioritised preference satisfaction and eclipsed any other virtue. Was it a price worth paying? No, not even by its own criteria of 'closing' the mathematical model. The bleaching of values did not even procure determinate multi-agent models moving along time's arrow. We ended up with massive indeterminacy unless we impose axioms, such as freezing time or assuming that the economy contains only one person - a Robinson Crusoe economy; axioms that would not even hold in Plato's world of rarefied, timeless ideas.

What is, however, remarkable is that this most peculiar of all theoretical failures proved exceedingly powerful in shaping the agenda. As the theoretical cat chased its tail ad infinitum, a reinforcement, feedback mechanism ensured that the less we economists had to say about really existing capitalism the greater our discursive and political power. And since nothing succeeds like success, our new power reinforced our pathetic theoretical endeavours.

Have you ever wondered where the financial engineers, Fed Chief Alan Greenspan and the rest of the powers-that-be got the audacity to make the preposterous assumptions behind their financial mathematics and macroeconomic models prior to 2008?

My answer is: They found that courage in this curious reinforcement mechanism. Almost in a bid to anger my colleagues, I have reached the conclusion that economics is a major impediment to any rational scientific program that can successfully combat humanity's woes at every level: from medicine to reversing our planet's browning.

 

Epilogue

 

The cynic knows everything about prices and nothing about values. Thus Oscar Wilde famously identified a blindness to values and a slavishness to market prices as cynicism.

Today, it is sensible to identify Wilde's definition of cynicism with a suicidal tendency on humanity's behalf.

Less humourfully, but equally insightfully, the philosopher Kierkegaard suggested that Evil seeks Nothingness because Being is itself a kind of Good. To stop large scale Evil today we need:

At the level of political practice

• Freedom from markets of ill-defined assets (such as clean air and water, land and its uses, human capacities and capabilities)

• Strengthening of collective agency at a global scale

At the level of theory

• To overcome the tyranny (and the extreme poverty) of preference satisfaction

• To restore critical reasoning, genuine values, and a modicum of virtue that economics has done so much to expunge from the public debates that matter

vitalspace.org is committed to playing its small part in this common sense campaign against well funded agents of collective stupidity.

 

Yanis Varoufakis

[The above is a modified version of a presentation in the context of a conference held in Athens, held on 14-16 october 2010 at The Eugenides Foundation, on Greening Humanity: Science, innovation, ethics and the green economy, organised by the Institute for Science Ethics and Innovation of the University of Manchester]