03 October 2016

Stupid Economics

Written by Published in Finance
Stupid Economics ©Wolfgang Schmidt

Deep down in our soul, we cry out for someone, anyone, to point the way out of our current financial troubles, both personally and at large. But in reality, it might mean rethinking the value of money altogether

It was the early 1980s, and the mud in the slum of a rural town in Peru was ankle-deep. Berkeley-educated German-Chilean economist Manfred Max-Neef stood, soaked, across from a local man in the pouring rain. He found that his expensive education had provided him with no language capable of describing the experience of that moment with this man, who had absolutely nothing – apart from many mouths to feed.

It was clear to Max-Neef that in order to succeed as the kind of economist he wanted to be, he would have to invent a new kind of language to explain the nuances visible only through the perspective of the poor. He decided to become a ‘barefoot economist’.

Max-Neef’s travels through South America, living and working with the poorest communities, opened his eyes to the abundance found within their livelihood strategies. He discovered the logic and beauty of judging the worth of things by their usefulness rather than by their monetary value. But most importantly, he realised that development is about people, not objects or the pursuit of infinite growth. The result of his experiences was the book From the Outside Looking In: Experiences in Barefoot Economics that won him the 1982 Right Livelihood Award, also known as the ‘Alternative Nobel Prize’.

Talking to internet TV channel Democracy Now in September 2010, Max-Neef poignantly pointed out: ‘In poverty, there is enormous creativity. You cannot be an idiot if you want to survive! What I learned from the poor is much richer than what they taught me at university.’ He continued: ‘In the developing world you find networks of cooperation that are totally absent in individualistic society. There is respect, solidarity, mutual aid and no greed.’

After his travels, he went to work on the semantics of development he knew was essential in creating an alternative to the growing number of failing strategies based on the principles of modern economics. What emerged was his approach document Human Scale Development (HSD), published as a collection of essays in 1991. This was later recognised by Cambridge University as one of the 50 most important books on sustainability. In ancient Greece, Aristotle had a name for good household management or ‘the art of living, and living well’ – oikonomia. This tenet would facilitate happiness by valuing objects and other elements according to how they enhanced the experience of life. Socrates considered friends and knowledge to be a vital part of oikonomia. The modern, warped version of this noble notion is what we know today as ‘the Economy’.

However, this modern concept relates much more closely to the Greek word ‘chrematistics’, which translates as ‘the manipulation of wealth to maximise monetary exchange value to the owner’. That this word has not made it into modern-day usage speaks volumes about the control and distortion of language by powerful elites.

HSD is designed to diagnose the ‘wealths’ and ‘poverties’ of a given community to create solutions that bring coherence between the people and life-support systems of the earth. In other words, to allow them to live according to the principles of oikonomia. Essentially based around fundamental human needs and how they are satisfied, HSD does not arrange them in a hierarchy, but rather as an interconnected framework.

Used in groups, it is an excellent diagnostic tool to work out the root of problems and how to solve these for mutual benefit. Over a period of days, a variety of dialogues are employed to reveal the participants’ true understanding of what needs to change to enhance life in their community. Implementing these valuable insights, practical strategies can be created to move things forward.

1max-neefneeds logo redrawManfred Max-Neef and his colleagues developed a taxonomy of human needs and a process by which communities can identify their ‘wealths’ and ‘poverties’ according to how their fundamental human needs are satisfied

From his all-embracing experiences on the ground, Max-Neef identified what he considers are the nine fundamental human needs: Subsistence, Protection, Affection, Understanding, Participation, Recreation (leisure, time to relax), Creation, Identity and Freedom. These needs fall into four categories within which we all experience life: Being, Having, Doing and Interacting. Max-Neef believes that these fundamental human needs have stayed constant throughout human history and across historical periods. What changes is the way these needs are met. You could even go so far as to suggest that this is how cultures are defined.

Through the lens of HSD, a community can have multiple ‘poverties’ or ‘wealths’ at the same time. This view recognises the complexities of the human condition beyond material needs, and re-conceptualises what it means to be poor. If a poverty grows persistent and serious enough it can turn into a ‘sickness’. It is those problems development should aim to heal.

In terms of Satisfiers, there are several types, but the most dynamic ones meet several needs at once – these are called Synergic Satisfiers. Mainstream education, preventative medicine, music, cooking and art all fall into this category. For sustained positive change to happen, development must embrace and promote these. Satisfiers take a variety of forms: some fulfil a single need, such as curative medicine and insurance, satisfying the need for Protection, whereas others create the illusion of the fulfilment of needs. These are called ‘Pseudo-satisfiers’, and include advertising, prostitution and (some may say, paradoxically) charity. 

Some Satisfiers even do more harm than good (Violators), but are promoted as meeting a certain need. In fact, they destroy the possibility of meeting other needs. The arms race is a disconcerting example, claiming to provide Protection, but instead negating the ability to satisfy Subsistence, Affection, Participation and Freedom in communities the world over, while counterproductively making society more insecure. Bureaucracy acts in much the same way.
Commercial television is a perfect example of an Inhibiting Satisfier, used to pacify the need for Recreation, but in fact interfering with Identity, Creativity and Understanding.

Looking at the UK riots of the summer of 2011, it is tempting to agree with neoliberal economists that humans are simply driven by an insatiable thirst for material possessions. But analysing the situation through the prism of HSD reveals an entirely different picture. Glancing through the framework, it does not take long to realise that the only fundamental human need satisfied for many of these disillusioned young people is Subsistence. In each and every other category poverties occur, with the riots exploding as the overt symptom of a ‘sickness of society’.

Max-Neef is deeply concerned that we have reached a point in our evolution where we know much but understand very little. There is a disconnect from reality: economists sit in pristine boardrooms with vast knowledge about poverty, yet they don’t comprehend it. He maintains that this is one of the key reasons it is still endemic in today’s world.He has referred to the financial crises we are encountering as the result of systematic human stupidity. ‘Politicians and leaders know what has to be done, yet they continue to do exactly the opposite. Greed has become the dominant value in today’s world.’ 2011 brought into stark relief the shortcomings of a global system designed to benefit a minority at the cost of the majority. It has become a paradox so large, yet so embedded in modern society, that the elephant now fills the room. But things are changing. News headlines tell of ever-widening cracks in the veneer of society, with a deeply unhappy citizenry living on a planet struggling to keep up.

In 2010 Max-Neef co-authored another book, Unmasking Economics, a lucid evaluation of the failures of the current system. He describes the US as a dramatic example of a new category of countries labelled ‘underdeveloping’. These are countries where growth has crossed the threshold where it stops increasing quality of life and actually starts to undermine it.

Speaking in 2010, he used an analogy by now familiar to us from the Occupy movement: ‘You have 1% of the population doing well and 99% sliding further and further into poverty, living in their cars, parked up outside the houses they used to own.’ Apart from writing books and travelling the world giving lectures, Max-Neef made waves by standing as an independent candidate in the Chilean presidential elections in 1993. He came fourth, but managed to ruffle a few feathers on the way. He was subsequently appointed Rector of the Universidad Austral de Chile in Valdivia.

That Max-Neef is so much more than an economist is clear from a comment he made to a friend: ‘Although my work was conceived as a theory of economics, the profession of economics has been the very last academic discipline to take any notice of my contribution.’ Some even consider him a contemporary prophet, having an intuitive ability to read the signs of the times. A Christmas card he sent to a friend read: ‘If instead of time of infinite duration, eternity is timelessness, then eternal life is here and now. If the future becomes an alibi for eluding the responsibilities demanded of us by the present, then let us construct a generous daily life, in order to make our eternity worthwhile.’

Article first published in 2012, Sublime Magazine (print) Issue 31

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