International Copyright 1997 Joe Flower All
A version of this article was published in the National Civic Review (Volume 86, #1, Spring 1997) as "Beyond Economics"
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A car crash is good for the economy -- by traditional measurements.
Ambulance companies make money from it, emergency medical technicians pick up overtime. So do healthcare workers, body-and-fender shops, car dealerships and the car companies, insurance adjusters, physical therapists, and psychotherapists. All these are counted by traditional economic measures, and in those measures probably far outweigh the lost capital represented by any undepreciated value of the destroyed cars -- and may even outweigh the costs of the lost work hours and lowered lifetime productivity of the injured, and the hiring and training costs to replace the dead.
What is not measured, what is not considered measurable in traditional economics, is the human suffering. That is dismissed as an "intangible."
Similarly, the Exxon Valdez disaster pumped hundreds of millions of dollars into the Alaskan and U.S. economies, while the destroyed public lands and dead wildlife showed up on no balance sheet.
The illegal drug industry pumps huge amounts of money into our central cities, hidden though it is in the underground economy, and creates a shadow above-ground industry of anti-drug crusaders, treatment centers, narcotics squads and investigators. The ruined lives, the mothers prostituting their children for crack, the fear in the streets, the young people cut down in turf wars -- none of that shows up on the balance books.
A forest has value only if it is cut down, as so many board feet of timber, or as a tourist resource. Its beauty, the role it plays in the ecology of the planet, the oxygen it generates, the species that live in its boughs and barks and under the tuff and needles of its deep-layered floor, its awesome quiet -- these don't count.
We measure the value of a town by its tax receipts, the property values, the payroll generated. Whether the citizens feel safe walking the streets at night, how educated the young people are, whether they have a sense of opportunity, whether the water is pure and the air healthy, whether the town looks beautiful or shabby, whether people enjoy their lives -- none of these count, in traditional economic measures, except by raising or lowering property values, payroll, and taxes.
Repeatedly and continually, we face choices which pit one value against another -- to fill in a wetland and build a shopping mall, say, to uproot the family and take a higher-paying job someplace else, or to lure a new factory to town by relaxing the environmental requirements -- with only one value represented in traditional economic terms: the value of dollars on the bottom line in the short run. All other values are considered unmeasurable "externalities" in this traditional accounting.
Clearly something is wrong with the traditional ways that we think about economics, about how we measure and maximize value in our lives. If a "healthy" community is a "whole" community, then clearly we need an economics that goes beyond dollars and cents and money in the till, a "deep economics" that measures and maximizes our true wealth.
In recent years, some thinkers have attempted just that.
A number of new economic thinkers, such as Hazel Henderson and Paul Hawken, have wrestled with the conundrum of measuring our true wealth so that all our values can be weighed in each decision. Clifford Cobb, Ted Halstead, and Jonathan Rowe of Redefining Progress have suggested a substitute for Gross Domestic Product (GDP) which they call GPI -- a "Genuine Progress Indicator" -- which includes 20 measures beyond the simple bottom line of the GDP. Herman Daly, co-author (with John Cobb) of For the Common Good, has influenced the World Bank's rethinking of what constitutes wealth, assets, and income.
Paul Ekins (author with Mayer Hillman and Robert Hutchinson of the Wealth Beyond Measure, an Atlas of Green Economics) has suggested that we should consider three other kinds of capital in addition to the traditional one. His "Four Capitals" model starts with human development (counting people as assets in which we can invest), then includes natural capital (looking at natural resources as seed corn), and social capital (measuring the family and community strengths that are necessary to any true wealth), and finally economic capital (traditional capital treated not as an end in itself, but as a means to nurture the other types of capital).
Traditional economics views people as consumers and as costs.
The clearest example of this is on the corporate balance sheet. People show up as expense items labeled "payroll," "health benefits," "training." We might think this is an unimportant artifact of the arcane methods of accounting, but it permeates much of corporate thinking. If it did not, we would never have seen layoffs become so commonplace. Layoffs rip the complex human fabric of an organization, damaging and destroying that carefully-gathered human capital. Layoffs are often necessary, notably in the cases of such giants as General Motors and AT&T, which had become bloated under the assumptions of a different time. But repeated studies have shown that in the majority of cases, layoffs do not achieve the goals of those who initiate them: not higher productivity, not a leaner, swifter organization, not even short-term cost-cutting. Still, if you think of people only as costs, it's all too tempting to pare them away when you're under pressure to improve the bottom line and get that share price up
A new, more comprehensive economics would see people as assets, would make "investing in people" more than a metaphor, whether in the corporate world or in the community. Investing in people's health, education, and safety makes them worth more, any way you measure it.
Traditional economics treat natural resources much as Atilla treated the Roman Empire: easy pickings, an object of plunder, of no value until you have cut the trees down, strip-mined the land for its ore, swept the seas clean of fish.
Again, this is no peculiarity of accounting. This is how we have come to see the world: the resource has no value before it is used, and the despoliated land and fouled waters left behind are marked "SEP:" somebody else's problem.
Yet there are plenty of large-scale examples of a different way to use resources, "sustainable development" that leaves the resources in better shape than we found them. This is not about self-denial; this is about intelligent management. Paul Hawken, in The Ecology of Commerce, says, "To create an enduring society, we will need a system of commerce and production where each and every act is inherently sustainable and restorative.. We must design a system ... where doing good is as like falling off a log, where the natural, everyday acts of work and life accumulate into a better world as a matter of course, not a matter of conscious altruism." He cites a favorite example: the Menominee Indians of Michigan have a private forest of 243,000 acres right next to the Nicolet National Forest. The national forest is over twice as large, but the Menominee consistently get far more board feet of usable lumber out of their forest. Are they clear-cutting? No. They cut carefully, selectively. Every seven to ten years they survey the forest, and at each survey over the last 40 years the forest has more trees, more lumber, increased biomass. They have been doing this for more than 135 years. The asset on which they make their living is said to be a beautiful place: a recent study declare that "aesthetically [it] has no equal among managed forests in the Lake States region."
This is sustainable development: using the resource at hand as if the future mattered -- the future of that place, the future of our own children and culture, and our future as a species.
Traditional economics takes no account of friendship, social networks, family, community, church, or neighborhood, unless they directly produce goods and services that are exchanged directly for money. Yet clearly without these we are impoverished in many senses -- and it is more difficult to produce wealth even in the traditional narrow sense.
Harvard's Robert Putnam has written and lectured widely and cogently on the weakening of civic engagement in American culture, from the fall in church and PTA membership to the rise in bowlers who bowl alone rather than in leagues, and what this may mean for the quality of our lives.
John McKnight and John Kretzmann of Northwestern University have explored ways to measure and mobilize social capital for the task of rebuilding communities.
Amitai Etzioni of George Washington University, and others of the "Communitarian" movement, have written vividly of the need to revive our common bonds of community, and place them at least on a par with individual rights, and above a sense of individual entitlement.
Social capital is expressed in a "soft" or "civic" infrastructure, in the skills, processes, and relationships that underpin any effective society. The effectiveness of any policy change, any invested dollar, any practice, or any structure in a community seems to depend on how strong and intact is the community's civic infrastructure.
Traditional economics makes no distinction between types of investment based on content: capital does the same work whether it is invested in healthcare, in weaponry, or in mining. The only meaningful measure of effectiveness allowed by traditional economics is the "return on investment" -- how many dollars flow back for every dollar put out.
Yet clearly different investments with the same return have different affects, hard to measure as they might be. These are of two types: "multiplier affects," and the affect on other types of capital.
"Multiplier affects" answer the question: does this investment result in a product that creates more wealth? Suppose you invested in two products: a bomb and a machine tool, such as a lathe. The bomb, once manufactured and stored in an ammunition dump, does not produce any further wealth, unless we count the salary of the watchman at the dump. The same could be said of any investment in something that is not actually put to use. The lathe, on the other hand, is bought by a machinist, or used in a factory, to produce other items -- jet engines, motorcycles, electric motors, computer printers. The capital invested in the lathe goes on to produce more wealth -- it has a positive multiplier effect. Some investments, on the other hand, actually have a negative multiplier effect. An illegal drug wholesaler who invests in creating crack cocaine gets a very positive return on his investment -- but the crack seriously reduces the economic value of the people who take it, and the neighborhoods in which it is sold. The tobacco industry, a legal, profitable industry that generates lots of tax revenues, produces products that, when used as intended, sicken and kill millions of people.
From the point of view of the investor, each of these investments shows a positive return. From the point of view of the society, measured strictly in economic wealth created or destroyed, the lathe is a more productive investment than the bomb, and much more productive than the crack or the tobacco.
The second type of affect answers the question: what does this economic investment do to other types of capital? Does it leave people more or less educated, healthier or more diseased, safer or more endangered? Does it enhance and preserve our natural resources, or deplete them? Does it nurture social institutions or wither them, strengthen families or enervate them, bolster communities or sever their bonds?
This is often considered an ethical or moral question, a matter of "ethical investing." The arguments of the new economics seek to put the question beyond ethics, which can be considered relativistic and personal, and into the realm of study, where they can be measured, or at least identified.
Paul Hawken, in The Ecology of Commerce makes an ambitious attempt to design economic strategies that would link economic capital to the other types of capital. Herman Bryand Maynard, Jr., and Susan E. Mehrtens, authors of The Fourth Wave: Business In The 21st Century, sketch out a similar vision of a future in which business strives, for its own good, to build a more sustainable society.
The interaction of these four kinds of capital, often shadowed and difficult to extract from the swirl of reality, begin to rise into stark clarity when we attempt to build healthier communities.
As a way to increase health, medicine has always shown a very low return on incremental investment (that is, a low return of increased health, or years of productive and pain-free life, for each extra dollar spent). This low return has been noted especially in the research of Walter Fuchs, Rene Dubose, Thomas McKeown, and John McKnight. This has always been true compared to environmental and public health measures (such as the availability of clean drinking water, vaccinations, and work safety rules). It is increasingly true as those incremental investments come in larger and larger lumps of high-tech medical and surgical techniques designed to scrape out a few more days and weeks of life for people with multiple failing systems.
In contrast, many specific diseases and conditions can yield great return on very small non-medical investments. Studies show, for instance, that women with breast cancer double their survival rate by joining a support group, and that older people who are socially isolated have a mortality rate two to four times that of people with abundant social bonds. Repeated studies, conducted by Dr. Nathan Pritikin and others and published in peer-reviewed medical journals, have shown that 66 percent or more of patients diagnosed as needing cardiac bypass graft surgery can actually reduce their symptoms and get the diagnosis reversed through a program of diet and exercise followed for six months. In similar controlled studies, Dr. Dean Ornish's even lower-fat vegetarian diet, coupled with lifestyle changes and exercise, have shown a 90 percent success in avoiding cardiac surgery or angioplasty for people diagnosed as needing them.
The magnitude and power of such research has grown tremendously in recent years. Two things have pushed it into the spotlight. The stunning rise of healthcare costs throughout the 1980s and into the early 1990s brought business into a desperate search for ways of cutting healthcare costs. And business made healthcare its partner in this search by forcing healthcare to take on risk for covered lives. For the first time, as healthcare becomes at risk (or "at profit," we might say) for the health of populations, the financial life and death of institutions depends on increasing the health of populations through non-medical means. The magnitude of the stakes involved are illustrated by studies undertaken by Ornish in conjunction with major insurance companies, which show $6 saved for every $1 spent on non-medical methods of reducing heart disease.
Business is often more aware of the long-term, community-centered nature of this work -- because businesses typically have a much longer-term, more intimate, day-to-day relationship with their employees than healthcare organizations do with their members, because businesses have a wide range of concerns (not merely that their employees not be sick, but that they be productive, that the company not be exposed to suits or regulatory action, and so forth), and because businesses perforce have a very intimate relationship with the communities in which their employees live. The kind of work that creates a healthier community also creates a positive environment for economic development. A healthier community is a community that can be "sold" to other companies that might want to locate in that community.
Beyond these direct bottom-line concerns, in the 1990s increasing numbers of organizations have come to see a direct relationship between business and values, between the bottom line and a sense of stewardship and are becoming deeply involved not only in their employees' health, but in their communities' health, and in the health of the globe.
In the context of traditional economics, it can be hard to sell community and corporate leaders on the task of building healthier communities. They want to know: "Where's the short-term return on investment?" For many such efforts, there is no short-term return beyond good public relations. However, under the more powerful lens of the new economics, the true economic returns of community-building efforts are far more visible: these efforts are aimed directly at preserving and building the natural capital, human capital, and social capital that undergird any attempt to build economic capital.
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