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Chapter Two - page 1

CREATING ENOUGH ELBOW ROOM

In the world economy, only a very limited range of activities iscommercially feasible in most communities because of the intensity ofcompetition from outside. We must therefore build independent, paralleleconomies if we are to fill more of our needs for ourselves.

The last chapter attempted to make two important points. One was that alarge part of the world's population has lost the means and the ability toprovide for itself and has become dependent on a single, highly unstableeconomic system which has no use for a growing proportion of it.. The secondwas that for the next few years unless there is a trade war, politicians areunlikely to be willing or able to protect their citizens from being damagedby the world economic system even though it is actually running backwardsand making life worse almost everywhere.

If both points are valid, is there anything that people like us can do? Canwe achieve a better balance between the world economy on the one hand andmillions of local economies on the other, many of which have contractedalmost to vanishing point or are rapidly withering away? To put this anotherway, can communities limit the scope of the industrial system and itsindividualistic culture without governmental help and by so doing create aprotected space within which local, peasant-type economies and collectivecultures can be recreated or revived?

Before answering these questions, I need to define two terms. First, by apeasant economy I mean a society in which most families own their means ofmaking their livelihoods, be this a workshop, a fishing boat, a retailbusiness, a professional practice or a farm. In such an economy, familieswould, of course, be free to join with other families to own the source oftheir livelihoods collectively. Second, by the industrial economy, I meanthe system under which activities are primarily ways of making profits forshareholders rather providing ways of life. In the industrial system, groupsof investors typically put up the capital and employ workers to carry theirventures out, paying them wages which are regarded as a cost to be minimisedrather than a gain. In the peasant system, those wanting a way of life whichwill also provide them with a livelihood find or borrow the capital toemploy themselves and count their wages as a benefit.

The difference between the industrial and peasant systems is not only thatone seeks to minimise the returns to labour and maximise those to capital,while the other wants to minimise the return to borrowed capital andmaximise a wide range of benefits including income for the group involved.There is also a difference of scale. An investor-owned, industrial-systemventure can grow extremely large through mergers or by ploughing back itsprofits, the techniques which General Motors - with 251,130 people on itspayroll and an income which exceeded the GNP of all but twenty-onecountries - used to become the biggest company in the world in terms ofemployment at the beginning of the 1990s. Peasant projects, by contrast,tend to stay fairly small unless they adopt the industrial approach andemploy people who are not shareholders or participate in joint ventures withinvestor-financed firms. Many of the bigger Irish agricultural co-ops owetheir size to exactly these non-co-operative strategies.

If there was ever the political support, a better balance could be achievedbetween the industrial and peasant systems by enacting laws limiting thesize to which investor-financed enterprises were allowed to grow and whichsplit big businesses into hundreds of employee-owned parts. In addition,shops and factories could be barred from expanding beyond a certain size andrestricted in the type of technology and the amount of capital per workerthey could use. Similarly, to keep more families working the land, farmerscould be prevented from increasing their acreages. But these top-downtactics are pipe-dreams in the present climate and we have no alternativebut to work from the bottom up. In other words, rather than changing thelaw, we will have to change attitudes and ideas - and consequentlybehaviour - if we are to build peasant-system economies strong enough tosurvive the pressures and instabilities of an industrial-system world. Hereare three approaches I think we will have to adopt to achieve a satisfactoryco-existence.

At present, all our thinking about the right way to bring prosperity to theplaces in which we live boils down to identifying goods and services thatcan be made in or provided from our communities to be sold to peopleoutside. Mainstream economists tell us that with the money we earn fromthese activities, we will be able to buy the goods and services we ourselvesneed from wherever in the world they are cheapest and, because eachcommunity everywhere will eventually produce and sell only those thingswhich they can provide most effectively, everyone everywhere will be able tohave more goods and services and be better off than if they tried to doeverything for themselves.

This indirect way of meeting needs worked well when most of the goods andservices people needed were still provided from their own areas but now thatcommunities are almost entirely dependent on outside supplies it has becomemuch less satisfactory because of the increased levels of competition andinstability in the world economy. For example, if a community organisesgolfing holidays for wealthy Swedes as my town has done, it may bring extramoney into its area for a year or two but, eventually, several dozen otherdestinations are bound to offer very much the same sort of holiday too,bringing everyone's prices down. This increases the wealth of the Swedes inrelation to the communities competing to serve them and explains why, sinceworld trade has become so very important, the gulf between poor nations andrich ones has grown.

After being forced to give price reductions, the communities will be leftwith a much smaller income for themselves once they have paid outsiders forfood, drink, heating oil, electricity, replacements, labour taxes and so onthan they expected when they first planned the holidays. This might not betoo bad if they were able to shrug their shoulders and go back to the waythings were but this is rarely possible: guest houses and hotels which haveborrowed to build extra rooms and taken on extra staff now have higheroverheads and will find it financially ruinous to revert to their previouslevels of turnover. Their dependence on an income flow from the outsideworld has increased, and, consequently, so has their community's. Theconventional economic remedy for the reduced margins is usually to suggestthat the community finds another source of high-paying holidaymakers ortakes up some other enterprise altogether and makes good profits from thatuntil rivals catch on and, by offering similar products, bring everyone backto square one and force the whole find-a-new-product-or-market cycle tostart again.

By offering themselves as holiday destinations in a highly competitivemarket, the communities have not only become more dependent on outsideearnings and seen the wealth of their target customers rise in comparisonwith their own. They have also increased the risk of economic disruptionthey run since, should the exchange rate vary, a postal dispute preventbookings coming in, air traffic controllers strike or a recession develop inthe Swedish economy, those involved in the tourist trade could be very hardhit, with knock-on effects on the rest of their communities.

In current conditions, then, selling things outside our immediate areas toearn the money to buy the goods and services we must have to survive cannotbe considered the basis for a sustainable, stable local community. What wemust do instead is to look at the resources of our areas and see how theycan be used to meet our communities' vital needs directly rather than viathe conventional, indirect, produce-for-someone-else-and-buy-one's-requirements-in route. It's true we have been taught that the indirectroute is more efficient because it takes more resources to grow bananas inEnnis, Essex or Essen than in Ecuador. My response to this is threefold. Oneis that the much-touted efficiency of the world trade system is a grotesquemyth, as I will explain shortly. For the moment, we only need ask ourselveshow a system which condemns so many people to spend their lives ininvoluntary idleness and uses so many scarce resources to do the simplestthings can still be regarded as efficient, particularly as we saw in thelast chapter that as some countries' output increases, their citizens areactually receiving a smaller amount of economic welfare year by year.

Secondly, even if the indirect system was more efficient, we ought at leastto discuss how much inefficiency we would tolerate from the direct route inorder to reduce the risk of our lives being blighted and our livelihoodsdisrupted by instabilities in the external world. Most of us pay premiumsfor house or car insurance every year, accepting the certainty of a smallloss in exchange for avoiding the risk of a big one. As communities weshould also be prepared to pay for insurance, in this case against economicdisruption, particularly as local economies which boast a wide range ofactivities are not only more stable but provide much more scope for theirmembers to find niches within which they can fulfil themselves.

Thirdly, bananas are non-essentials and if they were imported as a directexchange for some non-essential we grew, the fact that we relied on otherpeople to produce them would not matter: either party to the trade would beable to terminate it whenever they wished without seriously harming theother. Our goal should be to minimise our dependence on external trade notto phase it out altogether. Trading outside our communities should becomesomething we can engage in if we choose and then on our own terms, notsomething which is vital for our survival.

Existing levels of prices or profits cannot be allowed to decide whether weshould make or grow something in our communities or not. This is becausethere is no connection between an item's value to our community and theprice our neighbours pay for it in normal times. True, most economists andright-wing politicians believe that market prices should determine what isproduced, in what quantity, by what method and where, because it is'uneconomic' and 'inefficient' to take other factors into consideration. Butthis is because they believe that the market price of something is equal toits value and because all their thinking is in terms of the industrialsystem. Efficiency, however, can only be measured in relation to one'sobjectives and if we have objectives which those running the industrialsystem are not permitted to share such as satisfying work, stability,sustainability and fairness rather than the maximisation of returns toinvestors' capital, our success or failure must be measured with respect toour targets rather than theirs.

In terms of progress towards community goals, local production for local usecan be much more efficient than production for outside markets. This isbecause a community is interested in a much wider range of benefits thansolely the profit a business makes. It is, for example, interested in thetotal income - the wages, the profits, the payments for local materials -that the business brings into or keeps in the community's area. Investors,on the other hand, are usually only concerned with the tiny fraction of abusiness's total income flow which ends in their hands, an outlook which,from a community's point of view, is very much the tail wagging the dog.Moreover, because a community needs its income for long-term tasks likeraising children, it wants to be sure that the activity will continue formany years. Investors, on the other hand, tend to have very short timehorizons and frequently give up valuable future benefits to get moreimmediate returns. In a 1994 survey by the Confederation of BritishIndustry, two thirds of the companies which responded required investmentprojects to pay for themselves in three years or less¹. What is efficient forour communities is therefore very different from what is efficient forinvestors in the wider world.

Unfortunately, the future of the planet as well as of communities is cloudedby the 'market price equals value' type of thinking. In 1990 a Nobelprizewinner for economics, Professor William Nordhaus of Yale University,was anxious to calculate how much the United States should be prepared tospend to lower the risks presented by global warming. Because agricultureand forestry, the sectors which would be most affected by any warming, madeup only 3% of the United States' national income (which is, course, ameasure of its output at market prices) he proceeded to assume that this wastheir value to its citizens. In other words, he overlooked the fact that allthe non-agricultural things which go to make up a modern economy and whichwould be relatively unaffected by the 2-3 degree rise in average temperaturehe was assuming - intensive care units of hospitals, underground mining,science laboratories, communications, heavy manufacturing andmicroelectronics were the examples he gave - would be valueless if peoplehad nothing to eat. This remarkable oversight enabled him to conclude that,as by no means all food and forest production would be lost, the maximumdamage likely to be suffered by the US as a result of global warming was ofthe order of 0.25% of its national income. Consequently, after allowing agenerous margin for uncertainties, he argued that it was not worth the USspending more than 2% of its national income each year to reduce greenhousegas emissions.

Nordhaus's verdict would be amusing if it had not reduced the scale andurgency with which the world's governments have responded to the climatecrisis and if fellow-economists were not still citing his paper withapproval. By confusing price with value, he failed to recognise that ourfood, raw materials and energy supplies are worth much more to us than areother products and services on which we might spend the same proportion ofour income. Food and transportation make up roughly equal shares of theaverage American's budget but he or she would give up practically everythingto continue eating when faced with death by starvation, but considerablyless to secure petrol to keep running a car.

We must not make this mistake. In other words, we must not use world pricesto determine which activities are profitable and can therefore be carried onin our communities because, if we do, we might find that the production ofitems of the greatest value to us, such as food, clothing, light and heat,are ruled out and that increased economic independence is thereforeimpossible. Indeed, we could well find that the only things which areprofitable to do at world price levels are those we are doing already, plusone or two we have only just thought of.

But if a lot of the types of production necessary to make our communitiesmore self-reliant would be loss-making at current, externally-dictatedprices, we have a huge problem on our hands because even in a peasanteconomy, no commercial activity will continue long unless those engaged init get a reasonable return for their efforts and on the capital they haveinvolved. A generation ago, as we discussed in the last chapter, governmentsenabled national prices to differ from those on the world market usingimport duties and quota controls. This widened the range of production whichwas commercially possible. Now, however, these methods have been outlawed byinternational agreements and there is no way of preventing world prices fromsetting local ones in the places in which we live. As a result, unless wecan find some way for local producers to make a profit supplying us with afull range of essential goods and services at prices identical with thosefrom outside, our attempts to achieve greater self-reliance are likely to bestillborn.

At first sight our quest for such a way seems doomed to failure,particularly as there are only two basic approaches local producers can useto lower their prices. One is to be so super-efficient that they can matchtheir outside competitors on price whatever the outside labour costs,whatever the technology, whatever the source of raw material, whatever theeconomies of scale. The second is for us to reduce the prices at which wesupply our labour and capital to local businesses by enough to make theirprices competitive: in other words, to give them a subsidy. Neither of thesestrategies seems promising but let us look at both more closely to see ifanything can be done.

Page 2 of Chapter 2

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