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Economics 101

River and forestEconomic Systems

For those of us living in Canada at the beginning of the 21st century it is easy to assume that the economic system in which we find ourselves is the only economic system there is - that all peoples everywhere are using it and have always used it. An economic system is a way of structuring an economy to reflect the values, assumptions, and goals of a particular culture. Much of the world today operates out of a market economic system. Market economists believe that the market is sufficient to serve all aspects of human life. But there are other ways of structuring an economy and economic systems that recognize that not all values have a market price.

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Let's look at some different kinds of economies:

Subsistence economy
Originally all peoples on the earth lived in what we now call subsistence economies, described by Indian Eco-feminist Vandana Shiva as economies in which you "satisfy basic needs through self-provisioning."1 Instead of relying on money, subsistence economies depend on the riches of the natural world. People grow food, fish, and hunt to satisfy hunger, they build their own houses from natural materials, and they drink from the rivers and streams. Because they live intimately with nature, people living in subsistence economies are more able to view the benefits of respecting nature instead of exploiting it. They harvest plants and eat animals but they also plant new seeds and encourage animals to reproduce. They create little waste and they produce only what they need for a given period instead of storing things up. A subsistence economy depends on nature to reproduce itself as well as human beings working in partnership with nature to ensure that plants, animals, and humans all survive. Within a subsistence economy, people value cooperation with nature and with each other.

Market economy
Today, most economic systems are dominated by the market, by which market refers to the exchange (buying and selling) of goods and services. But a market economy isn't about simple exchange. Rather, it's about making money, earning capital, expansion, and most importantly growth. Market economies depend just as heavily on the natural world as do subsistence economies, only this dependence is ignored. Economics, or a system of sharing limited resources, is really just one aspect of human existence but in a market economy, economics becomes more important than everything else. Health, the environment, community - all of the physical, social, religious, and emotional aspects of our lives are subsumed or taken over by the economic aspects of our lives. The economy becomes not an aspect of culture but culture itself. In 2001, then US President George W. Bush rejected the Kyoto Protocol saying it was "bad for the economy," meaning it will get in the way of making money. Good for health, good for the environment, good for people, none of these are good enough reasons. Economist E.F. Schumacher says that in a market economy, "Anything that is found to be an impediment to economic growth is a shameful thing, and if people cling to it, they are thought of as either saboteurs or fools."2 Economic growth is measured simply in terms of money and it is the accumulation of money which is most valued. This focus on accumulation leads to short-term thinking. A forest is worth only the price paid for the trees once they are cut down, not the benefits it will provide to the environment and humanity for the next 10 or 100 or 1000 years.

When people talk about the Western economy they are referring to the market economy because that is how most people living in the western countries like Canada and the rest of the Americas as well as Western Europe, understand the economy. These countries are working hard to force this system onto the rest of the world to feed the market economy’s constant need for growth and resources. This is accomplished by forcing countries to adopt export-oriented market economies and is linked to corporate globalization.

Water damCommand economy
A command economy is an economy in which production is in the hands of the state rather than the hands of private enterprises. It is similar to a market economy in that the goal is growth and the dependence on the natural world is mostly ignored. However, there are some significant differences between market and command economies. A typical market economy is a Capitalist economy, an economy which emphasizes the expansion of capital. In a capitalist economy the means of production are controlled privately. This means that products are produced by individual business as opposed to publicly-owned institutions like governments. People who advocate for a capitalist economy argue that the competition that results when many individuals or corporations produce the same or a similar product leads to the creation of the best (and cheapest) products. However, opponents argue that when private individuals produce a product or service as opposed to a government, their primary motivation is to make money and to sell as much as possible. Governments on the other hand are motivated to provide services to their citizens. Therefore in a command economy the means of production are controlled by the government. The goal is not expansion of capital, to sell as much as possible, but rather to provide a service for citizens of the state. A typical command economy is a Socialist economy where governments work towards economic equality for all as opposed to just a few. Socialist economies value equality and equity of distribution.

There have been and still are command economies in the world. China and Cuba are two examples. Many people argue that they haven't worked well and have led to poor products and poor countries. Unfortunately, countries that have strived to create more socialist economies have been faced with much prejudice from countries with capitalist market economic systems. Socialist economies faced and continue to face trade boycotts cutting off from the rest of the world. For many years they traded with each other but after the collapse of socialism in Eastern Europe, Socialist economies like Cuba had few countries to trade with, so indeed many of these countries have become quite poor.

Where does Canada fit in?
Canada's economy is primarily a market economy though it has some features of a socialist economy. This makes it a Mixed economy. Even though much of the means of production in Canada is controlled privately, not all of it is. Governments are still in charge of health care, building most roads, delivering mail, and printing money. These are activities that are not meant to be income-generating but rather to provide services for the citizens of Canada. However, in recent years many of these public services are threatened by privatization. One example is MTS (Manitoba Telecom Services Inc.) which was public but is now private.

Green economy
Many people have come to see that the typical economic systems described above are bad for the living world. While a market system may give us lots of money and a command economy may attempt to divide that money up more equally among people, neither system recognizes its dependence on the natural world. As well, the goal of both systems is growth rather than health and well-being of the environment and humanity. Green economics advocates a transformation of the economy so that, "markets express social and ecological values."3 A green economy pays attention to the effect of economic policy on all peoples and the environment, recognizing the dependence of all of human life on the natural world. It values most highly ecological health, the source of all economic possibilities. For more information on green economies visit Green Economics.

Sustenance economy
Other people have come to see that the natural world is unable to sustain a market economy which continually encourages growth and expansion and the natural world is unable to sustain this. Sustenance economies are a kind of return to a subsistence economy in which humans produce and reproduce wealth in partnership with nature.4 A sustenance economy is an economics of survival rather than an economics of overconsumption encouraged by a market-based economy. A sustenance economy allows us to pay attention to the huge inequalities that exist in our world. For example, we who live in the world's highest-income countries consume 80% of the world's resources even though we only represent 20% of the world's people. In contrast, the bottom 20% in the lowest-income countries consume less than 10% of world resources.5 Sustenance economies encourage us to use our fair share of resources, to replenish what we use, and to value restraint and frugality.

Woman with kids at breakfastLove economy
Another criticism that has been made of money-based economies like market and command economies is their lack of recognition of unpaid work. In response to this gap sustainable development consultant Hazel Henderson developed the idea of the Love economy which she describes as the "50 percent of all useful products and services in even industrial societies which are unpaid and largely produced by womenÄincluding volunteering, caring for the young, old and sick, household management, do-it-yourself housing, food-growing, and community service."6 Henderson points out that the UN Human Development Index estimates the value of unpaid work to be $16 trillion, all of which is missing from the GDP of all countries. This half of all human activity is not merely a hidden part of the economy, it is also the basis of the monetary economy. A Love economy values the work of production, reproduction, and caring for human life alongside the natural world as the foundation on which the rest of the economy functions.

What do you think?
The chart below shows some of the features of the different economies we have discussed. If you were designing an economic system what would be the key features of your economy? What would you use as currency? How would you ensure equitable distribution?


Economic Systems

Economy Currency Raw Material Primary Goal for what Purpose Structure
Subsistence none the natural world sustenance of human life so that we may all live and continue to live humans working in partnership with nature
Market money material goods and human labour growth,
consumption,
production,
expansion
satisfaction of individual needs decisions left to individual producers and consumers
- Capitalist       individual freedom production controlled privately
- Socialist (Command)       social equality production controlled by state
Green money though merely as a tool not as an end in itself the natural world to maintain the ecosystem so that humans and nature can continue to live together on this planet policies that support life
Sustenance money; perhaps local currencies the natural world sustenance of life so that we may all live and share equally humans working in partnership with nature and each other
Love bonds between humans human labour care of each other preserving relationships between and among people and the natural world based on relationships


1 Vandana Shiva. Staying Alive. London: Zed Books, 1999.
2 E.F. Schumacher. Small is Beautiful: 25 years later with commentaries. Vancouver: Hartley & Marks, 1999.
3 Brian Milani. Eco-Materials Project. For more information see www.greeneconomics.net
4 Vandana Shiva. Staying Alive. London: Zed Books, 1999.
5 New Internationalist. "Poor and Rich - the Facts." March 1999.
6 Hazel Henderson in E.F. Shumacher. Small is Beautiful: 25 Years Later with commentaries. Vancouver: Hartley & Marks, 1999.
  • Economics Glossary


    "The earth has enough for everyone's need but not for anyone's greed."

    Gandhi


    "Our growth economy is based on greed and envy stimulated by aggressive advertising."

    Herman Daly


    "Today wherever you go, you find the same market economy - the same kind of food, clothes and buildings, such as Coca-Cola and McDonald's."

    Satish Kumar


    "An economy is simply a set of rules that is devised by a culture in order to promote its cultural norms and what that culture thinks is valuable."

    Hazel Henderson


    "It is inherent in the methodology of economics to ignore [our] dependence on the natural world."

    E.F. Schumacher

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