Interdependent we stand, divided we fall

Andrew Simms, policy director of the New Economics Foundation (NEF), asks us to look for ‘the day in a typical calendar year when, in effect, we stop relying on our own natural resources to support ourselves, and start to live off the rest of the world’. By the calculations of his team that day just passed: 16 April. From here on in, at current levels of natural resource use, the average person ‘goes into ecological debt’.

The NEF is committed to challenging the way we look at economic questions, putting ‘people and the planet first’. In its new booklet The UK Interdependence Report, it examines the relation between Britain’s aggregate consumption and the planet’s stock of natural resources. It arrives at the idea of ‘ecological debt’ (‘a new term has entered the language’, gushed Anita Roddick) by looking at Britain’s balance of trade in primary goods. By comparing the import of natural goods like apples, sugar, fish, flowers and palm oil with their export, the report arrives at an alarming trade imbalance. It is by projecting the difference between imports and exports of these natural products on to the calendar that the Interdependence Report arrives at the day at which we go into ecological debt. Countries that export more natural goods than they import, like China, India and Malawi, are in ‘ecological credit’.

This is a different way of illustrating the concept of the ‘ecological footprint’, the natural hinterland needed to support any settlement. An ‘ecological footprint’, it is argued, has to be smaller, or bigger, according to the area that must be farmed, fished and mined, to support the level of consumption of any such settlement, like a town, city or nation. According to the Interdependence Report, Britain’s levels of consumption, were they to be reproduced across the planet, would lead to an ecological footprint that was greater than the Earth itself. In fact, they say, you would need three planets to keep everyone in the world on British consumption standards. If American living standards were generalised, you would need more than five planets.

The arithmetic works, just, because other countries use less – so on Malawian living standards, we would need only a third of the Earth. But alarmingly, the whole planet is ecologically overdrawn already. On 23 October, we all run out of natural resources. Before you nip down to the supermarket to stock up on tinned goods, though, bear in mind that – so the theory goes – the Earth can extend us a little ecological credit, before its stores are wholly depleted.

The goal of summarising the complex network of material exchanges that make up the world economy is very appealing. Frenchmen of the ‘Physiocratic’ school, Francois Quesnay (1694-1774) and the Marquis de Mirabeau (1715-89), drafted an ‘economic table’ that described all the interaction between town and countryside (1). The economic table inspired Karl Marx (1818-83) to examine the exchanges between the two sectors of the economy that produce consumer-goods and producer-goods (those products that are destined to be part of another product) (3). The Russian Wassily Leontief (1906-1999) developed what is known as an ‘input-output’ analysis of the economy, in which the outputs of one industry are seen as inputs into another: so raw cotton is an output of plantations, but an input of cotton spinners, whose output spun cotton was an input of cotton weavers, whose output cloth was an input for tailors. Originally derived from the emerging science of Soviet planning, Leontief jumped ship and wrote the definitive analysis Structure of the US economy, 1919-1929 (3).

More recently, a lot of environmental economists have looked at the total resources of the world as a single store of goods, to try to find the limits of consumption. So systems analyst Jay Forrester and Harvard biophysicist Donella Meadows created computer programmes (‘World 3’) to estimate resource depletion, concluding that oil would run out in the year 1992 in a report called The Limits to Growth, commissioned by the elite Club of Rome in 1972 (an updated version was published in 2004).

The attraction of these big-picture accounts of the world economy is perhaps due to the unsatisfactory nature of the mainstream, neo-classical or equilibrium models. The mainstream economic descriptions have a tendency to rather dull supply and demand curves, in which graphs and formula come first, and the empirical content is dropped in afterwards as demonstration of the correctness of the theory. What these other big-picture accounts have in their favour is that they remind us that the economy is not an abstract meeting point of subjective preferences measured in prices, but a real process of material production, with certain definite proportions and indeed limitations (4).

However, the choice of how you will summarise the economy will necessarily affect – skew, even – the final picture at which you arrive. The UK Interdependence Report makes natural resources the defining feature of the world economy, in keeping with its underlying belief that natural resources are the most important thing. The net effect of that is to minimise the contribution of more developed economies, whose products are more worked up, and emphasise that of less developed ones, who will tend to produce primary goods.

Of course it is quite possible to construct different analyses of the world economy, skewing the results in quite different directions. For example, those theories that emphasise the ‘knowledge economy’ or ‘creative industries’ are constructed in such a way as to focus exclusively on the technologically advanced industries that tend to be concentrated in the developed economies, thereby minimising the contribution of the less developed. So Department of Trade and Industry adviser Charles Leadbeater insists that, ‘The critical factors of production of this new economy are not oil, raw materials, armies of cheap labour or physical plant and equipment’ (5). Leadbeater’s lauding of intellectual property over labour and raw materials is self-evidently an apologia for the biases of the British economy. But the UK Interdependence Report is just the mirror image of Leadbeater’s Living on Thin Air: its intent is to minimise Britain’s contribution to the global economy, instead of exaggerating it.

Methodologically, this re-casting of the statistics might be interesting. But what it tends to do is to erect a moral standard outside of the real world, against which the actual distribution of goods is judged, falling short in some way. The result is normative, as much as it is analytic.

If one decides to create a special scale of values that prioritises one kind of good over another, it would be as well to be aware of the meaning of that approach. After all, the system of exchange itself is a system for allocating values to goods. It has one spectacular advantage over those imaginary systems that substitute the knowledge economy, or ecology, for the actual output of saleable goods, which is that it is real. The market prices of things are not just information that one can order differently on the page; they are information that is recognised by others, irrespective of whether they agree with its underlying assumptions.

One might reasonably protest that Britain’s export earnings from advertising or financial services are not making the world a better place. But still, there they are, adding to the country’s funds for private and (by generating taxable incomes) public investment. After all, Britain’s balance of trade might be difficult at times, but if the deficit really were two thirds of all consumption just for one year, let alone year on year, the economy would already have collapsed. The founder of classical economics, Adam Smith, explained at the time that the Physiocrats Mirabeau and Quesnay had confused one kind of wealth, agricultural produce, with wealth in general, that would include industrial goods. Two hundred and fifty years later, the New Economics Foundation is repeating the same mistake.

The approach that selects one or other type of goods to skew the way the global economy looks is problematic, but unfortunately very common. Most common is the use of ‘Purchasing Power Parities’ (PPPs) in World Bank and United Nations’ statistics, and in various universities’ Development Studies departments.

With PPPs the actual value of goods as registered on the market is modified to reduce the price of similar types of goods to one another (say a haircut in a New York Salon, and a haircut in a Bangladeshi village). The effect of this modification of the statistics is to moderate the differences between developed and less developed economies, minimising the value of the output of the former, exaggerating that of the latter. Not surprisingly, measured in PPPs, China’s output is already greater than America’s – though in value terms, it is nowhere near as great. The UK Interdependence Report‘s preoccupation with natural resources has a similar, though rather more extreme effect on global comparisons, showing the developed countries all economic pygmies next to the third world.

This kind of statistical sleight-of-hand is all too common, but the thinking behind it is rarely made explicit. On the one hand it seems to put a greater value on third world countries. In 1929, the Surrealists drew a map of the world with all of the less powerful nations huge, dwarfing tiny Europe and America, which were non-existent between the Canadian-Mexican border. It was a cute joke, but it did not alter the actual balance of power between those countries. So, too, the adjustment of the economic statistics to make it appear as if those third world countries are weightier than they are does nothing to alter the actual balance of power between the West and the rest. On the contrary, it could be argued to be a palliative, flattering their less productive technological base, a kind of consolation prize. In the case of the UK Interdependence Report the argument is slightly different, making people in the UK feel bad about their use of natural resources. But as we know, feeling bad about the environment is an attitude that has no measurable impact upon resource use. On the contrary, as far as anyone can tell, feeling bad about the environment appears to grow in proportion to resource use.

Even if we accept the New Economic Foundation’s approach, there do seem to be some other interpretations of the statistics. For example, the problem of food dependency was highlighted by farmers and environmentalists in the 1970s, who pointed to the statistic that only 55 per cent of food consumed in Britain was grown here (6). But as it turned out, the Ministry of Agriculture, Food and Fisheries amended those statistics, finding that they had been systematically underestimating the indigenous component in processed foods. In 1998, Britain produced more than 100 per cent of its sheep, pork, milk, wheat, barley and oats; more than ninety per cent of poultry and eggs; more than 80 per cent of beef and veal, and potatoes. Only butter (77 per cent) cheese (65 per cent) and sugar (64 per cent) were lower than four fifths domestically produced (7). The UK Interdependence Report refers to the government statistics, but seems to ignore the difference between its numbers showing us dependent on the world for basic goods and the government’s showing us self-sufficient in agricultural goods.

The NEF does make an issue of Britain’s sugar dependency, pointing to her reliance on sugar imports from former colonies, like Fiji and the West Indies. Having lived in Fiji, I can say the question looks rather different from there. Most sugar cane farmers live in dread of the cancellation of the Lomé agreement under which the European Union pays massively over the odds for its sugar, as it does for other foodstuffs from the former colonies. The agreement, which was created to avoid bankrupting those colonies when imperial preference was abolished, is threatened by the World Trade Organisation (8). The real burden that the British Empire put on Fiji was its dependence on sugar as the colony’s single most important crop. Indeed, a more typical complaint against the G8 developed nations made by the developing world than that the West is draining its natural resources, is that the West is dumping its vast agricultural resources, thus pushing local produce below any profitable price (9).

The model of an exploitative West draining the third world sounds very radical. But it should be born in mind that the NEF’s version of this argument is rather different than the one made by the revolutionary Vladimir Lenin 90 years ago. Lenin did draw attention to the struggle for the control of natural resources as a source of rivalry over the colonies between Western powers (9). But his argument that the West was ‘parasitic’ upon the developing world identified a resource other than raw materials. Lenin was concerned with the way that the imperialist powers were exploiting the labour of the developing world, getting rich on the work done by native workforces in foreign-owned mines and plantations. It was the exploitation of third world workers, not third world nature, that he objected to. After all, within Lenin’s Marxist framework, it was a given that mankind exploits nature. Far from being a problem, it was the very definition of development for Lenin that we should increase the exploitation of natural resources for man’s benefit, and I agree with him.

The objection that these resources are finite rests on a confusion. Of course the material wealth of the planet is finite in an absolute sense. The mass of the planet is finite. At some point in the future, the Earth’s orbit will decay to the point that life is unsustainable here. But the absolute, which is to say natural, limits of industrial output are so fantastically distant that it really is not worth thinking about them. The point was made at the time of the original Limits to Growth report. Sussex University scientist William Page disputed the timescale of absolute resource depletion with a simple illustration – un-tapped mineral wealth in the world’s seawater:

Furthermore, writes Page, with drilling going no further than six of the 25 to 40 miles of the Earth’s crust, reserves have not even been touched yet. Page’s point is not that the resources of the Earth are infinite, only that the Limits to Growth computer model massively understated them – or rather that it confused limits that were relative to the current level of scientific knowledge, like known oil reserves, with absolute limits. Page predicted then that, in principle, resources were sufficient for ‘perhaps tens of thousands of years’ (10). Oil price rises in the 1970s led to new exploration, and adjusted estimates of what reserves were profitable, leading if not to tens of thousands of years’ grace, at least enough to take us beyond 1992.

Wrapped up in the guilty self-loathing over British consumption levels is a strangely ‘Little-England’ view of the world. The unspoken assumption throughout the UK Interdependence Report is that there is something wrong with economic interdependence across national borders. The NEF’s draftees seem to recognise that this might be a weakness in the report, since it is heavily qualified with protestations that the influx of foreign culture and goods is a positive thing. But what else can it mean to raise increasing interdependence as a problem, right down to complaining about the number of foreign players in English football teams?

What is more, the NEF overstates the amount of foreign trade by adding imports and exports before calculating the sum as a share of output. It is a calculation that suggests foreign trade is half of all output. But it would be more typical to take either imports or exports as a share of either total incomes or total output, giving a more realistic result that around one quarter of all goods produced are exported, or one quarter of all goods consumed are imported (11).

Far from being a weakness, economic interdependence – or, put another way, a more extensive international division of labour – would make not just Britain, but the world wealthier. If the working class learned anything from the collapse of nationally-based reformist socialism in the 1970s it was that identifying with the British nation is a waste of energy. Business theory constantly rubbishes national boundaries (though there is a definite chill of national protectionism in response to China’s growing competitiveness). The one group of people, it seems, who most thoroughly identify with the nation state are those would-be regulators and government inspectors of the environmentalist movement.

Does the New Economics Foundation really want national borders policed to defend food security, like some Sir Bufton Tufton of the 1950s?

James Heartfield is a writer based in London. Visit his website here.

(1) See the extracts from their work in Ronald Meek, Precursors of Adam Smith, London, 1973, 101-146

(2) See Capital, Volume II

(3) Published in 1941. See William J. Baumol and Thijs ten Raa, Wassily Leontief: In Appreciation, Journal of Economic and Social Measurement 26 (2002/2003); Paul Mattick ‘Reflections on input output economics, Science and Society, Vol. 31, No 2, 1967; Daniel E King, Input Output Analysis, Encyclopedia of Business, 2nd ed.

(4) ‘Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour.’ Karl Marx to Kugelmann, 11 July 1868

(5) Living on Thin Air, 2000, Penguin, p 14

(6) Herbert Girardet (ed) Land for the People, Crescent Books, London, 1976; and see my Herbert Girardet and the plastic concept of sustainability, Rising East Online, Issue 3, January 2006

(7) Britain 2000, HMSO, p. 446

(8) See Heartfield, ‘Ancient Feud Haunts the Cane Fields’, Fiji Times, 8 July 2001

(9) Rigged Rules and Double Standards, Oxfam, 2002

(10) HSO Cole et al, Thinking About the Future, Sussex University Press, 1973, p37

(11) see, for example, Phillipe Legrain, Open World: The Truth About Globalisation, 2002, p 8