The Perverse Economy: The Impact of Markets on People and the Environment

218 Pages·2003·0.86 MB·English

by  Michael Perelman (auth.)

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T P
H E E R V E R S E
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C O N O M Y
T I
HE MPACT OF
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ARKETS ON EOPLE AND
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THE NVIRONMENT
Michael Perelman
THEPERVERSEECONOMY
© Michael Perelman,2003.
Softcover reprint of the hardcover 1st edition 2003 978-1-4039-6271-3
All rights reserved.No part of this book may be used or reproduced in any
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First published 2003 by
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is a registered trademark in the European Union and other countries.
ISBN 978-1-4039-7087-9 ISBN 978-1-4039-8026-7 (eBook)
DOI 10.1057/9781403980267
Library of Congress Cataloging-in-Publication Data
Perelman,Michael.
The perverse economy :the impact of markets on people and the
environment / Michael Perelman.
p.cm.
Includes bibliographical references.
1.Economics.2.Economics—Sociological aspects.3.Economic
development—Environmental aspects.4.Income distribution.5.Labor
productivity.6.Labor economics.7.Smith,Adam 1723–1790—Views on
labor economics.8.Scarcity.9.Value.I.Title.
HB71.P467 2003
330—dc21 2003046735
A catalogue record for this book is available from the British Library.
Design by Newgen Imaging Systems (P) Ltd.,Chennai,India.
First edition:November,2003
10 9 8 7 6 5 4 3 2 1
Contents
Introduction 1
One
Adam Smith and the Farm Worker Paradox 7
Two
Resources 21
Three
Value 79
Four
Patience 119
Five
Environmental Efficiency 133
Six
Back to the Farm Worker Paradox 145
Seven
A New Direction 175
References 185
Index 207
Introduction
Walking along a city street, I look up at a gleaming office building
filled with busy people. Hundreds, perhaps thousands of them are
manning computers, telephones, fax machines, or copiers or maybe just
shuffling paper—work that is coming to occupy the majority of employ-
ees in advanced market economies. Many seem to be working at a fran-
tic pace. For many of these people, prosperity must seem almost like a
birthright. Others, working long hours trying to get ahead, also expect at
the very least a middle-class lifestyle.
Great wealth flows to some of the people who occupy these offices,
and even more to those who employ them from afar. But what exactly do
they do? How do their activities contribute to society?
In what seems to be a world apart, in the countryside, a number of
immigrant laborers are working hard amidst a toxic soup of agricultural
chemicals. Yet, without these people or others like them, the economy
would grind to a halt. What would people eat without such workers sac-
rificing their own health in the fields? Despite their undeniable contribu-
tion, these people earn pitiably little. So little that one small study of
North Carolina farm workers found that 47 percent of them were food
insecure, including 9.8 percent with moderate hunger and 4.9 percent
with severe hunger (Quandt et al. 2003).
During the 1990s, the median income of individual farm workers
remained less than $7,500 per year while that of farm worker families has
remained less than $10,000 (United States Department of Labor 2000)—
a mere pittance compared to the privileged workers who occupy the
spacious offices. Certainly nothing compared to those who give the orders
to the crews in the offices. At one point, during a series of lectures to
young women, the young Alfred Marshall, who would become the dom-
inant figure in economics during the late nineteenth and early twentieth
centuries, raised the question, “how is it then that men consent to remain
2 THE PERVERSE ECONOMY
agricultural labourers?” (Marshall 1873, p. 103). Marshall let the question
drop; so too did the economics profession as a whole.
What explains this disparity between the office workers and the field
workers? You can look for an explanation in the books that supposedly
explain the workings of the labor market. There you can read that every-
thing follows from the inexorable laws of the market. Supposedly
everyone earns a reward commensurate with his or her productivity.
Economists can tell you with assurance that the farm workers live in
poverty only because their productivity lags far behind the average level
for the economy as a whole.
In contrast, many of the people who work in the more spacious offices
enjoy enough rewards to lead a life of comfort, or even luxury. Economic
theory proposes that they earn their elevated station in life because of their
high productivity, even though you may have a hard time identifying
exactly what they produce.
Press the economists further and they may explain that the people in
the offices who market and distribute the goods and services must be
productive—no, highly productive—since their wages are so high. People
who get these jobs often have some higher education, which supposedly
augments their productivity, even though their educational training
probably has little or nothing to do with their actual responsibilities on
the job.
How does this productivity manifest itself? These office workers figure
out ways to wrap products in layer after layer of packaging. They devise
advertising that makes people feel a necessity to buy goods. They may
even calculate the extra profits that will accrue to their employer by
cutting corners on their products.
The economists’ circular logic concludes that high wages are evidence
of superior productivity and that superior productivity necessarily earns
high wages. In effect, then, whatever exists is necessarily rational, unless
something somehow interferes with the natural workings of the market.
Even the excess education is rational because it serves as a signal of a
workers’ commitment to work productively.
Within this framework, the employees in the offices who shunt money
around—sometimes in stocks, sometimes in bonds, and sometimes for
directly productive investments—must be even more productive. Indeed,
these people must be extraordinarily productive. After all, they appropriate
the lion’s share of the wealth.
In contrast to the successful members of the economy, the lowly farm
workers have little education. Economic theory teaches that their skills
are widely available. Many more people living in poor countries would
Introduction 3
willingly take their jobs. How could a person like that possibly be worth
as much as a successful worker occupying a lavish office?
Besides, the food that the farm workers grow is not worth very much,
giving further proof of their meager productivity. Of course, this con-
ventional image could possibly have a different interpretation. What if
their low salary partially explains why the food they grow is inexpen-
sive? What if the high salaries that some professional workers earn
merely reflect the fact that they happen to represent sectors of society
that enjoy special privileges? After all, circular logic can work in both
directions.
Finally, what if the much-vaunted productivity of these highly
compensated workers depends, in large part, on the continuing ability to
draw down scarce resources? Or even worse, what if economic produc-
tivity, in general, would actually be negative if proper account were taken
of the resource costs of production?
Plan of the Book
The purpose of this book is to call for a wholesale rethinking of the way
that markets treat both labor and the resource base upon which we all
depend. Many excellent books already exist that make the case that
workers should be treated with justice and resources handled with care.
I concur with that view, but this book has a different objective.
The unique contribution of this book is, I believe, in analyzing the
relationship between the environmental crisis and the social crisis within
the context of modern economic thinking. Economists see the global
economy moving ahead at breakneck speed. Each year, millions of people
enjoy the opportunity to move up into the ranks of the middle and upper
classes.
Even so, all is not well in this world. The comfortable lives of the
fortunate minority rest upon a precarious foundation. The environment
cannot sustain the increasing demands that modern technology places on
it. In addition, appalling inequality strains the social fabric.
I am concerned that formal economic analysis justifies self-defeating
policies. The wanton use of the environment and callous abuse of the least
advantaged will undermine the very objectives that economists see them-
selves as furthering. This claim will probably not make sense to most
trained economists, who tend to believe that market forces will inevitably
lead to desirable outcomes.
4 THE PERVERSE ECONOMY
Of course, economists are not inhuman brutes who welcome the
mistreatment of human beings or nature. Most see themselves as further-
ing a scientific analysis of human activity. Many of those mainstream
economists who have an interest in policy sincerely believe that a greater
reliance on markets can correct both social and environmental problems.
Unfortunately, the method that they use to understand the world is
rigged in such a way that market solutions either give the best of all pos-
sible outcomes or that with a little jiggering markets will produce com-
parable results. Within the economics community critical assessment is
most unwelcome, and for good reason. Economic theory rests upon a
foundation of embarrassingly unrealistic assumptions.
This book will explore how economics narrowed its scope so radically
that it was left with tunnel vision; how it separated its view of the world
so radically that it is at odds with the prevailing view of the natural
sciences; and how continuing to accept market discipline threatens to
undermine both human capacities and nature—the very forces upon
which our future depends.
Chapter 1 sets the stage by showing how Adam Smith tried to grapple
with the wretched conditions of farm workers. Smith’s discussion is still
relevant today. Those who supply the most essential products for human
life still receive the least reward—what I will call the farm worker para-
dox. Although Smith’s treatment of the subject was unsatisfactory, to his
credit, at least he stumbled upon it, where virtually all later economists
have successfully avoided any discussion of the farm worker paradox.
Unfortunately, he let the matter drop quickly.
Chapter 2 discusses how economics treats scarcity. Just as most econ-
omists have avoided the farm worker paradox, they have steered clear of
the subject of scarcity. This approach is surprising since many economists
regard their discipline as the theory of the allocation of scarce resources.
Chapter 3 looks at the nature of economic theory rather than the eco-
nomic theory of nature. It analyzes how the core of economic theory
works to eliminate any concern with either scarcity or the conditions of
the least favored workers.
Chapter 4 extends the discussion of economic theory, concentrating
on the way that economic theory discounts the future, ensuring that con-
cern about future scarcity would be outside the ambit of conventional
economics.
The subject of chapter 5 is environmental efficiency. The purpose of
this chapter is to illustrate the complexity of environmental processes and
to show how ill-equipped economics is to analyze such processes.