The Great Disruption (29 page)

Of course, this might unfold in many different ways, some far less dramatic than that, but it is certainly not possible to imagine letting “nature take its course” not having profound impacts on the global economy, including developed countries. The idea that we could pursue a strategy of what Indian ecologist Madhav Gadjil called islands of prosperity within oceans of poverty, is a fantasy that would simply not work in practice.

So we need to consider this option carefully before we assume it is a realistic one.

Personally, I would vote against option one. What is option two, you say? I hope it's better than the first choice!

We have to go back to kindergarten. We have to learn to share with our friends. Unlike in kindergarten, however, now we know that having more toys doesn't make us happy, so we can rest easy that sharing won't decrease our happiness.

The math of this situation is clear. Remember where we started this journey. The earth is full. It is not possible for the future to have nine billion people in a growing quantitative economy. We can argue we should have fewer people, but most of the people we are going to have in this situation are either already born or soon will be. Given that we have limited resources and wealth and can't grow either significantly, we have to share. We have to accept that the only way forward that is acceptable to any of us is to spread the resources we have more equally around the world.

Let's be blunt and clear that this is going to involve those of us in rich countries having less—not just less growth, but less than we have now. Less stuff, less money, less capacity to build wealth and consume. How tragic is this? Not very tragic, really, not even sad. In fact, the lesson learned by those who've tried having less, like Colin Beavan and Michelle Conlin of No Impact fame, and John Perry from the Compact, is that having less actually made them happier. Scary thought given how hard we've been working to have more, isn't it.

If you don't like the idea, then you have to be able to look yourself in the mirror and accept that the world's militaries will be taking control of the process that sees option one unfold. These will be our militaries, our planes, our guns, “defending” us from billions of innocent, starving, desperate people. It will have been our choice, conscious, clear, and premeditated. Sharing doesn't seem so hard, does it?

If we are to choose option two, then we must recognize that our current approach of relying on liberalizing markets and unleashing economic growth is not going to work. We can't afford the risk that the situation will spiral out of control as I have described, because it will then be too late to do anything other than survive.

What we can do right now is launch a significant shift in how we treat poverty alleviation and development. We need to unleash a flood of people, funds, technology, and intellect to rapidly address these issues. The sooner we act, the better our chances of preventing the chaos that we will certainly otherwise face when the Great Disruption is in full swing.

Let's take this away from the practical level for a moment and consider it in the largest possible context. What kind of world do we want? It is incomprehensible that if we put our minds to it, we couldn't fix poverty. I'm not saying it's simple, but putting all the information in the world into a phone in my shirt pocket wasn't simple either, but we did it. Unpacking the human genome wasn't simple, but we did it. So fixing poverty permanently won't be simple and it won't be quick, but we can certainly do it. We have the resources now to do it, we just have to make the decision.

And how cool would it be if we did? Imagine a world where no one was starving, where everyone had basic health care and education, where we could look around the world and say: “You know what? We're doing okay.”

What we're going to experience is a profound transformation in values, one that will see us address what has for so long been a blight on our civilization. We'll adopt this course not just because it's the right thing to do, but because when confronted with the Great Disruption, it will be the only socially and ecologically viable option available. This doesn't make the values shift any less important or profound—it just makes the fact that it will happen a lot more certain.

This is not an argument for utopian equality, just for the elimination of grinding, soul-destroying poverty. I can't see any justification that explains a society where some have private jets while some die for the want of a bowl of rice or a glass of clean water. It's just not right.

We should stop it now, while we still have the chance.

CHAPTER 18

Ineffective Inequality

I remember as a teenage activist in the 1970s reading about the works of Karl Marx, I came across the quote “From each according to his ability; to each according to his needs.” It struck me then as an eminently sensible, simple idea, and I couldn't understand how any other approach could possibly be a better way to organize our society.

Then and since, we have had the real-world experience of communism, both as a totalitarian oppressive state and in its failure to deliver good economic outcomes while trashing the environment and human rights in the Soviet Union. It seems life is a little more complicated than I thought as a teenager. China's Communist regime has delivered some very considerable gains for its people economically, though at great cost to the local and global environment. Realistically, even those outcomes are due mainly to their adoption of many aspects of Western capitalism, though in their case without the democracy.

So we can safely conclude at this stage that the basic Marxist ideals of the benevolent state and the absence of private ownership are not suited to the reality of human behavior and tendencies.

Does that mean that capitalism instead is the answer to our political and social needs? Do we just let the market rip? That depends on how you define it. There is clear evidence that private ownership and reward for effort are powerful forces for economic and social development, and various applications of them have delivered over the millennia. They clearly tap into some deeply ingrained human tendencies. They are not the only motivators of human activity, but they certainly have significant and often positive impact.

Based on this historical experience, I have confidence that some aspects of market principles and approaches can make a significant contribution to social progress. However, given that market forces as we currently apply them are driving us to the brink of societal collapse, one has to conclude that we have some fundamental redesign work to do if we want to take this approach forward. Our current approach is certainly not working well. Even the avowedly pro-market economist Sir Nicholas Stern argued this when he described climate change as “the greatest and widest-ranging market failure ever seen.”

Markets don't work if left alone. They never have and they never will. They need guidance from government on behalf of the people markets serve, as we covered in chapter 11. We appreciate the raw energy of the market tiger, but it needs to be caged and directed. We covered earlier many of the design characteristics for this cage if markets are to play a significant role going forward, like caps on resource use and pollution.

One we haven't yet covered is inequality. As we have seen in recent decades, vibrant markets can create wealth, but they don't distribute it very well; in fact, they tend to concentrate it firmly in the hands of those who already have it.

Don't get me wrong—I'm not advocating that we impose equality for everyone by decree. There are differentials in people's contributions, whether they are driven by skills, character, or effort, and there is nothing wrong with differences in rewards for this, particularly for effort. This difference in reward is
part
of what drives people to work harder, to make an effort to make life better for themselves and their family and, in doing so, often for society as a whole. But to what extent does this motivate the outcomes we desire, how much reward is needed for it to be effective, and what are the side effects of the resulting inequality?

This is a markedly different type of moral question from extreme poverty, which most people believe is just wrong. The morality of inequality, while present, is much grayer. It is a constantly shifting judgment we make as to what's reasonable and fair. At one end, almost everyone would agree that complete equality is unfair and an ineffective way to organize society and motivate people. Likewise, almost everyone would agree there shouldn't be unlimited inequality—that is, there is some point where everyone would say, No, that's too much difference and not fair.

So one side of the issue is what is the
right
level of differentiated reward to motivate individuals to make an effort and to innovate. The other side is how much inequality is too much to be fair and socially effective. At what point does inequality offend our sense of fairness—a moral or ethical issue—and at what point does it create social and political instability—a quality-of-life and economic issue.

Professor Herman Daly points out that the military, civil service, and universities manage to keep ratios between the top and bottom salaries in their organizations within a range of 15/20 to 1 and seem to do okay with no lack of highly skilled, motivated, and competent leaders, yet the corporate spread in the United States is now up to 500 to 1.
1
There appears to be no evidence that such ratios actually encourage performance across the economy. The process of all sides boosting top salaries because the others are is more akin to an arms race among companies, bringing no net benefit to the system as a whole. Such situations clearly won't right themselves and are good examples of where government intervention is required. Yet when restrictions in this area are proposed, senior business figures argue strongly against them, on the grounds that government shouldn't intervene in the market.

This is where we come across one of the paradoxes in our cultural and political attitudes to these issues. This paradox is around the issue of limits.

On the one hand, many of the serious challenges we have been discussing throughout this book are the result of the lack of limits—we have come to accept that all growth is good, that there is no limit to what is reasonable for personal wealth, and that we can dominate nature because our technology will always find ways around the limits we would otherwise face. This belief in the lack of limits has a positive side, perhaps best understood by comparing it with our desire for our children to believe in themselves and their limitless potential. A belief in potential is powerful and important, for societies and for individuals. However, unrestrained it also has a dangerous side, an arrogance and inability to judge risks, with consequences we can clearly see. That's why we impose limits.

While the imposition of some limits remains politically contentious, the paradox is that we do impose limits all the time to make our society “civilized” and have done so throughout history—limits like making non-state-sanctioned violence illegal, imposing contract law to put accountability and enforcement around assumptions of trust, and imposing standards on food safety to protect public health. Despite this, we then sometimes object to other limits as “constraints on our freedom” or “interference in the market”—such as the arguments against capping executive pay or limits on product availability, like what cars we can drive, what guns we can buy, or where we can smoke cigarettes.

What this all means is that there is no credible, central argument against the need to impose some limits or constraints on human behavior. There is no freedom defense for unrestricted violence, and there is no free market defense for selling dangerous food. We accept limits, and we work with them every day. This means the debate is what
new
limits we now need to consider imposing, in the context of the Great Disruption, to continue to make our society stable and civilized and enable its citizens to improve their quality of life. In other words, what areas will the system not self-correct unless we intervene?

We have throughout this book raised many examples where new limits need to be put in place: limits to pollution of our air and water, limits to quantitative economic growth, limits to the consumption of natural resources. These were mostly about environmental constraints and their economic impacts. We are now considering directly social questions—what limits might be needed to make a more stable and effective society in which everyone can flourish.

Is there an argument for greater limits on inequality? What would lead us to impose them? Or should the market in this area be allowed to self-organize, to find a natural level of “effective inequality”?

We currently accept levels of inequality that are off the chart. Do we really believe that CEOs deserve to earn five hundred times as much as their lowest-paid workers? Do we believe our top investment bankers are delivering value to society twenty times as much as our top military commanders? Few actually agree with the current situation, yet we find ourselves in a system we are all part of that is delivering just those results.

Historically, the debate in this area has been framed around relative fairness. High levels of inequality, such as the examples just given, are widely considered unfair. And it's not just the poor that don't like it. Opinion polls in the United Kingdom and the United States show a strong majority—around 80 percent—believe that income inequalities are too large. This means some very financially comfortable people are not personally comfortable with such high levels of inequality. There is an intuitive sense that such extremes are not right.

Well, like many things we currently accept as normal and find hard to imagine shifting, this is another one that's going to see dramatic change with the Great Disruption. There are two reasons we will accept this change, even though it seems hard to imagine in today's political context.

The first reason is the shift we discussed in the last chapter in relation to poverty—the loss of the pressure relief valve that growth provides. Even though we don't like inequality, we accept it based partly on what is effectively a social contract. We believe each individual has the right to get ahead. In a growing economy, everyone can support this because the pie is getting bigger, so as one person gets ahead it doesn't mean another is forced backward. This makes growth the pressure relief valve for inequality, as argued by Henry Wallich, former governor of the Federal Reserve and Yale economics professor: “Growth is a substitute for equality of income. So long as there is growth there is hope, and that makes large income differentials tolerable.”

Without economic growth this contract can't be fulfilled. If the earth is full, someone can have more only if someone else has less. Without the pressure relief valve, reducing inequality becomes a social imperative in order to reduce social friction. But could this happen? Is it even remotely conceivable that, even in a full world, those who have greater material wealth would, in a democratic society, accept having less to enable others to rise up the wealth ladder?

This is certainly hard to imagine in today's political debates. But what if addressing inequality actually increased the quality of life for everyone, even for those we currently see as being at the top of society? Hard to imagine?

Here we come to the second reason we will shift away from such high levels of inequality. This comes from one of the most important pieces of research I've seen in several years, one that has substantially changed my view of how all this will unfold. Up until this point, I thought we were going to have to address poverty and inequality by a combination of moral persuasion and social imperative (to avoid local and global political instability). It appears there is another reason we should do so, one that is likely to be far more influential than moral persuasion.

This new research was presented in the book
The Spirit Level
by Richard Wilkinson and Kate Pickett and was the result of comprehensive analysis by its authors over many years into the impact of inequality on a huge range of social indicators of progress. Its conclusions are startling.

It turns out that the greatest predictor of social ills, across an incredible range of phenomena, is not the absolute level of poverty or disadvantage. It is instead the
degree
of inequality or income difference among people. This is profoundly significant, because we have mostly assumed that actual poverty—lack of wealth—was the cause of social problems. We therefore thought that because economic growth increases wealth, even if unequally, poverty would be reduced and along with it many social problems. This has been one of the key reasons government is so obsessively focused on economic growth as its central objective.

But it seems that absolute wealth is a poor indicator of social progress, whereas relative inequality within our society is a strong indicator. The fascinating thing is how comprehensive this is, impacting life expectancy, obesity, imprisonment rates, teenage pregnancy, mental health, levels of trust in the community, educational performance, status of women, and so on. The differences were not marginal, with most of the indicators being three to ten times worse in more unequal societies. This applied even when none of the subjects in the group being researched were anywhere near what could be considered poor. So, for example, among U.K. civil servants in Whitehall, all well paid by global standards, the bottom of the group had a death rate three times as high as the top of the group, of which only a third could be explained by other causes like obesity and smoking (and some of those were perhaps driven by inequality anyway).

Before you think, “Oh well, then, in whatever society I am in, I better get to and stay at the top of the pile,” consider this. The evidence demonstrates that even those at the top are better off if their society is more equal, regardless of their relative level of actual wealth. Studies typically divide society into four income groups—those in the bottom 25 percent, those in the two middle groups, and those in the top 25 percent in terms of income. The studies consistently show that greater equality improves wellbeing even for those in the top 25 percent. It might seem strange at first, but the best way for the wealthiest group to improve their own lives is to improve the lives of those earning less than them!

So here we have the killer blow to economic growth
and
the solution to many of our social issues. First, the killer blow. Inequality, it seems, is an issue with extraordinary leverage on the whole system, and pulling that lever would have substantial social and economic impacts. It will reduce our obsessive focus on economic growth and therefore pave the way for acceptance of its now inevitable demise. Here's why.