Billions of diverse people live, work and intermingle on the planet like never before. All of this coexists, mostly with grace and without imploding, because of the useful and powerful systems we’ve created to orient our thinking and actions. Two overarching ones being the economic and political systems that determine which ideas we accept without question and which are open to debate and molding. I’ll focus on the economic system here because that is what answers the question above, i.e. why do we create what we create?
By create, I mean both the “what” (the output) and the “how”, which includes countless actions at every step of the creation value chain. Actions that accumulate to create our work culture, then spill out into our lives and societies. The “how” also includes unforeseen byproducts of our economic activity.
Simply put, our economic system is the way we make choices about how to use resources to produce and distribute goods and services. Below are some economic fundamentals to reorient ourselves.
The economic system asks 3 questions:
- What to produce
- How to produce it
- Who gets the benefit
There are 3 main components that flow through it:
- Flows of materials
- Flows of energy
- Flows of information (particularly money)
There are two sides to the system:
- Producers that are also providers of capital. We call them firms.
- Consumers that are also providers of labor. We call them households.
Money flows between the two sides in the form of wages, that are used to buy goods and that money flows back to the producers as income.
We also have support infrastructures:
- Government, which levy taxes and provide regulation, public goods and services.
- Banks, which supply capital. They also help convert savings into investment as capital back into the economy.
All this appears in Economics 101 classes as baseline; indisputable facts and foundational concepts upon which all further understanding rests. What’s never clearly stated though are the assumptions underlying this framework.
Some of these assumptions:
- There is scarcity. We have unlimited wants but limited resources, so we need to make choices in what we produce, how we produce and who gets the benefit.
- The free market system sorts everything out. The supply and demand curves intersect at a point of equilibrium and those that are willing and able to pay the price of a product or service will do so.
- Households are consumers.
Our current economic system has elevated our lives in endless ways through an abundance of ideas, services and products. Most of us have better chances of access to these things compared to our ancestors. But we’ve paid dearly for these assumptions that don’t just underpin the economic system, they now underpin how we operate as individuals and societies.
Assumptions drive actions:
- Scarcity and competition. When we think everything is scarce and we have to compete to survive, what kind of companies and societies will we create? Will it be easy for us to think long-term as stewards of the environment and people or might it be easier to extract, create, sell and move on?
- Free market is the engine of economic growth and regulation gets in the way. Combine free market with a scarcity-driven competitive mindset and what will we get? Will we orient ourselves towards meaningful long-term contribution for everyone’s wellbeing or towards the largest short-term gains possible?
- The purpose of households is to provide consumers and labor. Households are the building blocks of society. They drive our individual and communal wellbeing. They support all the work and innovation under the sun. The nourishment we get at home propels our work and stands between us and burnout and yet, it’s rarely respected and celebrated at work as a driver of impact.
- Communities can’t take care of their commons. So we privatize and extract every inch of our commons physical and attentional commons leaving no space for calm and unmonetized interactions.
Are we then surprised when:
- We create a transactional relationship with the environment: Our businesses create flashy and new goods that become defunct only after a couple of years and go into landfills. The repair shops of past are nowhere to be found and it’s cheaper to replace electronics, furniture, shoes and clothes than trying to fix them.
- We consume more than we need: We live in massive houses with massive refrigerators to accommodate the massive sized food items that we can’t easily carry on a walk home from the store, and we have to get in the massive car (atleast in the United States) to burn gas.
- We get trapped by efficiency: It’s easier to expend little effort and efficiently “connect” on social media vs. getting to know our neighbors. Easier to buy cheaper on Amazon than support the local main street.
- We cover every piece of our public commons in advertising: Leaving no space to decompress physically, mentally and emotionally.
We say the free market is neutral and value-free. Every system we’ve created is initially framed and then executed by humans. People whose thinking has been shaped by social, cultural, historic and moral contexts and it’s very hard to transcend these. Being practical, efficient or profit-driven are values.
No rational endeavor is ever without values. And what we value and deem worthy, we incentivize. Our economic systems have values and incentives embedded in them and these define not just what and how we create, they silently define what we aspire to.
“If we haven’t specified where we want to go, it is hard to set our compass, to muster enthusiasm, or to measure progress. But vision is not only missing almost entirely from policy discussions; it is missing from our culture. We talk easily and endlessly about our frustrations, doubts, and complaints, but we speak only rarely, and sometimes with embarrassment, about our dreams and values.” ― Donella Meadows: environmental scientist, educator, and writer.
