Think again about that bargain buy

One of the things that has crept upon us over the last few decades is the rising prominence of mainstream economic thinking in our lives and into the

Aug 25, 2016

By Anil Netto
One of the things that has crept upon us over the last few decades is the rising prominence of mainstream economic thinking in our lives and into the very centre of public policy.

This was not always the case. In the 1970s, for instance, a stint as education minister would serve a politician well in his quest to become the prime minister.

These days, the ministry of finance is now seen as the most important portfolio. The ministry of education seems to have receded into the background in the hierarchy of importance.

In evaluating projects to improve the wellbeing of the people or for companies making investments, the ultimate consideration appears to be how “economic” those projects would be.

The widely held belief is that the common good will be uplifted if everyone, every company, works towards maximising returns on investments or capital employed.Conversely, the ultimate condemnation is to label something as “uneconomic.” Or to label an asset as “idle” if not used to maximise returns.

But as path-breaking economist EF Schumacher pointed out, “the judgment of economics is an extremely fragmentary judgment, one of a large number of aspects which in real life have to be seen and judged together before a decision can be taken...”

The economic consideration — that is whether the project yields a monetary profit “to those who undertake it” — is only one of these aspects

Schumacher urged us to take note of the phrase “to those who undertake it (the decision on a project or investment or whatever).” He says it is a great error in evaluating a project to assume that what is profitable for the group (or company) will be beneficial or would yield a profit for society as a whole.

There are non-economic factors — social, aesthetic, moral or political — which society, as a whole, may hold dear. But these often do not come into play when deciding if a proposed project is economically viable or if public assets are to be put to the best use.

Mainstream economics tend to put a lot of emphasis on short or medium-term financial gains and profits. Its definition of costs excludes “free goods” — the air, hills, sea, rivers, forests — the “God-given” environment, as Schumacher puts it. These cannot be measured in financial terms — they are priceless.

So a project may yield enormous profits to a company — it may be “economic” — but the project cost excludes the harm it does to the environment and society at the same time.

The human being’s dependence on the natural world is tragically ignored.

When primary goods are produced or extracted from the earth, there is little attempt to look at whether they are renewable or non-renewable.

Schumacher wrote in Small is Beautiful that economics often looks at goods and services from “the point of view of the market, where willing buyer meets willing seller.” The buyer, sadly, is reduced to a bargain hunter, seeking the most economic or cheapest price.

The only condition imposed on buyers is that they shouldn’t buy stolen goods. Think about this for a minute. Why should that be the only condition if we say we truly love our neighbour or are concerned about the community?

What about bargain buys which are produced using cheap, exploited labour, maybe even child labour in sweatshops? Should we rush to buy such goods?

What about goods that use non-renewable raw materials that are being fast depleted? Or goods that are made from manufacturing processes that harm the environment? Or food and beverage products made from raw materials produced by farmers who receive a meagre income?

Think of those expensive coffees that are served in fancy outlets. How much of the price you pay actually goes to the coffee bean farmers?

Should we be buying cheaper imported goods instead of supporting local farmers, wet market traders and sundry shop owners? Imported goods might be cheaper but what about the impact this would have on the country’s balance of payments?

In Malaysia, like elsewhere, we follow the dictates of the market. But what has been the result? Our farmlands have been converted to land for high-end property development catering to property speculators, not a few of them from abroad. With less land cultivated for food, our food imports have soared. That has not helped our balance of payments. The ringgit has weakened. And food prices have soared, making life difficult for those with limited incomes.

All this is because of a narrow framework of economics. Schumacher laments that “the market is the institutionalisation of individualism and non-responsibility” — that is, the buyer or the seller is not responsible to anyone but himself or herself. There is then the danger of envy and greed creeping in.

Under this framework, it becomes illogical for a wealthy seller to reduce the price for a poorer customer or for a wealthy buyer to pay more for a product bought from a poor vendor.

Because of the serious limitations of conventional economics, Schumacher urges economists to understand “meta-economics.” This he says consists of two parts: one dealing with the human being and the other dealing with the environment.
So economics must not only include a study of the human being, its methodology must also come from a study of Nature.

This way, the next time we talk about economic growth rates — 5 per cent GDP growth — we won’t stop there. We will start to ask if that is a good thing or a bad thing. How fairly has that growth been distributed? To what extent has such economic growth harmed the environment or the social and community fabric? True, we now have environmental and social impact assessments for specific large projects, but these are often cursory studies or mere formalities.

As it stands now, Schumacher laments that mainstream economists find it hard to come around to the idea that “there could be unhealthy growth, disruptive growth or destructive growth” and refuse to allow such thoughts to surface.“Since there is now increasing evidence of environmental deterioration, particularly in living nature, the entire outlook and methodology of economics is being called into question.”

When you consider that those prophetic words by Schumacher were published in 1973 — more than four decades ago — you can see how far ahead of his time he was.

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