Hyderabad, 18 October, 2008
Introductory note by Orio Giarini, founder of The Geneva Association and editor of the European Papers on the New Welfare, presentations to the World Academy of Art and Science: General Assembly 2008, “The Anthropocene Crisis: Perils and Possibilities of the 21st Century” Hyderabad, India: 17-20 October 2008
l. The remaking of economics : an ethical issue – putting the right questions today
There is an ethical basis which moves those who provide meaning and goals to the human endeavour.
Adam Smith, as a professor of moral philosophy, was challenged ( at the end of the eighteenth century ) by the necessity to promote new systems and methods of activity to better fight poverty. In a period in which most where still looking at agriculture as the exclusive way to produce wealth, he perceived in the first and scattered exemples of industrialisation, that this was the priority way to promote the Wealth of Nations. In fact he also provided the key references to found what is now called “ Economics “. A discipline which is still based on a rationalisation process derived from the traditional ( western ) industrial revolution.
It is very significant to remind that even the successful measures promoted by John Maynard Keynes to face the economic crisis of 1929, were closely linked to a deep change in ethical values and attitudes : making debts was then considered a sin both at the individual and at the government level. Under certain conditions ( the capacity to control inflation) such a sin became a virtue . The New Deal had started, as well as the mass consumpion era of the economy ( where unions could play a greater role )
was moved by a first imperative : to promote peace, avoid nuclear war, letting people and leaders to understand that we live in a more and more interdependent world. Linked to this , the great issues put foreword by the first report to the Club of Rome on “The Limits to Growth “ : the ecological issues and the management of resources ( now referred to as the problem of sustainability ), the population explosion, the world dimension of economic and social development.
In the introduction to another report to the Club of Rome*, he wrote:
“ Only by a comprehensive assessment of the ensemble of human needs and demands over a long period – well beyond our generations –will it be possible to ensure the intelligent combination, use and conservation of whatever resources are available………..this concur with ethical principles whereby the Earth’s natural endowment, the “ common heritage of humakind “, is held as something for which each generation is a trustee for those to come and only a pro tempore or income beneficiary .
….this should form the real nucleus of a real “new economics”.
….the most important point in this report is that it says that a a synthesis between economy and ecology is needed ; that the two are not separable ; that there cannot be wealth in an ecologically unsound world ; and that the strategies for wealth production should be centered around this Earth endowment – called “ Dowry and Patrimony “
…the whole question of value is refocused around two notions. Value is what humankind can and does produce – which means that value can also be negative and this is indeed the case when destruction is the outcome of human activity, however much it might add to the GNP
…production can and does usually take place both inside the “ monetarized “ system ( which is economic’s conventional, if not exclusive, field of enquiry ), but as well outside it
….the utilisation value, shifting the accent on life cycle of products and services, puts man in the centre of the picture
…capital requirements of the future will be immense, but is is human capital which must first be formed…..capital is per se nothing more than a tool to mobilizae human action and is productively
usable only in so far as it helps to organize human endeavor better….”
*“ Dialogue on Wealth and Welfare “, a Report to the Club of Rome, by Orio Giarini, Pergamon Press, Oxford, 1980
Following these premises, there are a number of consequences, partly analyzed in other reports to the Club of Rome ** :
– conventional “Economics” today , in its macro.economic dimensions, is based on an historial period where the process of industrialisation was clearly the quantitative and qualitative priority
– in this old perspective, for instance, the conomic activity is subdivided in three sectors : agriculture, industry and services. BUT today service functions represent about 80% of all economic activity ( in particular WITHIN the “ manifacturing “ industry : R&D, planning, control, storage,distribution,financing,maintenance, waste management etc.). Good manufacturing depend on first class services. And the two are part of the same “production” process ( the one does not exist without the other ).
– in this context the notion of productivity must be revised
– the notion of value itself depends on a chain of “ production “ which starts with R&D ( well before any “manufacturing” begins and depends on the ability to manage a portfolio of research possibilities – hence is essentially a form of risk management ) ; manufacturing itself is based on a majority of service functions : distribution , storage, financing, “ communication “, etc. ; then the product and related services go through a period of utilisation ( which is the real value added ) based on two key uncertainties : the lengh of time of utilisation, the costs of repairs, accidents and maintenance ; at the end, the costs of wastes disposal ( with a part – only – of recycling ). All this is a process based on varibale periods of time, where the notions of uncertainty and risk management are fundamental.
– the traditional notion of value is based on the costs ( remuneration ) of the factors of (industrial) production : the prize is given in a moment in time, as is assumed as a theoretical basis for systems which aim at defining certainty. Incomplete information of various kinds is referred to as the reason why in practice, there are always margins which make not possible to achieve a “perfect” system. Some economists still believe that with time “scientific” advance will reduce this “incomplete” information. In reality things go the other way because value, real value, has to consider longer and longer periods of time, and anything in the future ( especially in the long term ) is uncertain. Therefore the notion of value is at the center of the “ management process “ in the modern economy : the game consists in reducing and control various level of uncertainty. An interesting reference are the operations of the insurance companies ( producing policies ) : more and more “ industries” operate today on similar premises. All this has to do with some ( often hidden ) forms of philosophy.
– There are many other reasons to examine more closely the real content of the notion of value : an increase of waste and various forms of destruction are today indicative of “value added”. Does it make sense ? Quite reasonably the beginning of economics has to do with the fight against scarcity : the point is that today many things which are originally not scarce ( freely available, at no cost ) sometimes become scarce and therefore acquire value….. It is fundamental for the future economists to monitor the crossing of this frontier between free goods and services and scarce ones. This frontier might also be crossed in the other way : technology might in some case become so efficient to make some products-services totally free. The free “productive” activities ( non remunerated work in particular ) require to be acknowledged as part of the creation of the Wealth of Nations.
– It is fundamental today to seriously ask again the old question investigsted by Adam Smith (and other “classical economists snd philosophers such as John Stuart Mill) : what is and how is produced the Wealth of Nations ?. the great debate is on “value” and “values”.Any specific ( often deterministic)definition of value creates discriminations , disequilibria and inbalances and even “economic” inefficiencies : a case in point is the role of monetarized and monetized “value” in the recent financial ( “subprime”) crisis, lacking credible indicators on the increasing vulnerability ( cost ) of the system. Hence the importance of rebuilding economics around a set of meaningful indicators defining the Wealth of Nations.Sociology and other disciplines should positiverly inter-react here with “economists”.
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** “The Limits to Certainty” ( Facing Risks in the New Service Economy “, by Orio Giarini and Walter Stahel, Kluwer Publishers, Dordrecht – Boston, 1993 ; “ The Employment Dilemma and the Future of Work “ by Orio Giarini and Patrick Liedtke, The Geneva Association, Geneva, 2006
Hyderabad, October19, 2008
Session on : The Demographic Transition
Introductory note, by Orio Giarini *
At the beginning of the Club of Rome, the issue of the world population has been at the center of the “world problematique” . We add here some considerations on the issue of “ageing”.
A recent study of the United Nations indicates that in the year 2050, the world population will include almost two billions people over 60 years of age, corresponding to about 22% of the total. The majority will live in those countries we define today as developing.
Keeping this figure in mind, we propose here a number of key considerations :
– the lengthening of the life cycle is a unique revolutionary phenomenon, having a profound impact on contemporary and future societies . It concerns the social, political and economic institutions in a far deeper sense that it is still commonly perceived ;
– people in older age, over 60, 70 and 80 have always existed. But they were special cases representing a minute minority. Now the lengthening of the life cycle concerns the majority of the population. It is a mass phenomenon. An analogy can be found in the economic history of the industrialized countries : from the beginning of the twentieth century, the poors ( and the illiterate ) have become a minority after having been for centuries a majority;
– the lengthening of the life cycle is a world wide phenomenon. From the “older” industrialized countries it is extending to the large majority of communities, everywhere. The contribution from the developing and industrializing countries to the “over 60” population in the world will be determinant and overwhelming ;
– the lengthening of the life cycle is often presented ( wrongly ) as the problem of “ageing of population “, and as such as an indication of decay of the industrialized world : in fact, the “older” countries have the great advantage to both offer a longer ( and better ) life to their citizens and to advance in the delicate social, economic and political adaptations required by the new demographic reality. Such problems and experiences will concern more and more the rest of the world ;
– what is really ageing is the notion of older age itself. Taking into consideration the ability of each individual to be autonomous ( in physical and/or mental terms ) , many studies and surveys indicate that in the average a 60 or even a 80 years old person of today, correspond to a person about 15/20 years younger living one century and more ago. Statistics based not on age but on capacity to perform , indicate in fact that in many countries, the population is not “ageing” but “rejuvenating” . In fact we live in a “Counter-ageing society”* ;
– the lengthening of the life cycle is clearly the result of economic and social advances strictly linked to the scientific and technological advances : biology, medicine, health control, nano technologies, nuclear applications, communication, instrumentations etc. are all producing now almost every year significant advances for the human body and its maintenance;
– the lengthening of the life cycle, in all its aspects, is then clearly the fundamental issue to keep in mind discussing social policies
Most of the issues introduced in this summary are dealt in THE EUROPEAN PAPERS ON THE NEW WELFARE ( “ The Counter Ageing Society “ ) : issues 1, 4, 6 , 8 and 9 in English and issues 2, 3, 5, 7 and 10 in Italian. They are fully and freely available on : www.newwelfare.org
– we would also strongly recommend to consider as key indicators of the Wealth of Nations the figures concerning life expectancy, as well as its quality ( the WHO has already started some work in this direction .
– the lengthening of the life cycle implies of course to redefine the period of the ACTIVE life : many studies and statistics of the WHO ( World Health Organization ), among others, are devoted to this issue .
– active life should be considered in two different categories : remunerated work on one side and unpaid or benevolent activities on the other. In fact the two are complementary, and this more and more so in the post-industrial Service Economy ;
– concerning remunerated work and employment, the lengthening of the life cycle implies the open possibility ( and in many instances the necessity ) for extending the retirement age. At the time of the first provisions for retirement were fixed at the average age of death, very close to the end of the working life. Today, at the age of retirement, in many countries, life expectancy tend to reach 15 to 20 years;
– satisfactory employment , based on adequate formation and education systems ( including preparing to change type of jobs according to age conditions ) , is in a majority of cases the condition to have a healthier life ;
– at the basis of this : enhance the HUMAN CAPITAL at all ages
– it is very important to consider and promote part-time employment as a basic element for a well balanced social security system : among others, it is an important issue for all those working over 60 and 65. As it happens in some northern European countries, part time pensions will be more and more coupled with partial work. Important are also the gradual retirement plans and the perspective of the “four pillars system” ( see on this www.genevaassociation.org ) , based on the three pillars of the Swiss system plus the fourth pillar referred to the partial employment;
– health improvements necessarily produce a great increase in costs : one could die almost for free in a not so long past, and one has to pay for possibility to control , eliminate or reduce the effects of all sorts of illnesses or accidents. We spend already a lot of money to buy and use an automobile which allows us to move ( sometimes ) faster : we will probably one day spend even more for our health maintenance, which allows us to live and move
– from an economic point of view, retirement and health costs, imply to building of financial capabilities, under the form of redistribution ( de facto : fiscal systems ) and under the form of savings ( or reserves ). We have here to do with nothing less than a new definition of the notion of Capital ( its building and utilisation ) in the post-industrial Service Economy ;
– another very important issue on which to invest research capabilities in the one or two next decades, is the reconsideration of the measurements which refer to the “ Wealth of Nations” and from which to derive the most appropriate references for better welfare policies. In the Service economy, not all the “value added” measures indicate an increase in the level of wealth ( for instance the costs to cope with pollution ), whereas many developments in service functions and performances ( for instance in the case of many communication systems ) add to real wealth much more than usual value added references indicate. In particular the notion of productivity , in a Service economy, is much more relevant with reference to performance in time ( hence in a probabilistic system ) than to the production factors costs ( in an equilibrium based system ). But all this is linked to progress in economics as a discipline, and to its integration with environmental issues ( which also pretend to solve the problems of the “ Wealth of Nations” , on the base of their “sustainability “ );