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An Interesting New Way to Look at the Economy: Are Economies Like Ecosystems?

Progressives have a golden opportunity to challenge conservative economic orthodoxy with a fresh, sustainable approach to creating prosperity.
 
 
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We need a new way of looking at how the economy works if we want to solve our serious economic problems. The current policies and talking points, based on mainstream economics, are clearly not up to the task. It's time to re-envision our economy as an ecosystem in which each part plays a critical role. Progressives can start creating a framework that can help us to coordinate the entire system so that all the parts are functioning and thriving, with the government acting as a good steward. It won't be easy to break through thirty years of mainstream economic frames (we'll have to occupy the legislatures and the classrooms), but the first step is changing our language and lenses.

What's in a Metaphor?

Current economic policies, focused on balanced budgets instead of spending money to create jobs, are based on outmoded metaphors of the economy as a self-correcting system. In this misguided view, if something goes wrong, it will hopefully just get better on its own and the government doesn’t have to intervene. The government, according to the old Econ 101 view, can only make things worse. According to most mainstream economists, the market is so efficient that whatever happens must be the best of all possible worlds – and they are true believers, even after the disaster of the financial crisis of 2008.

In an ecosystem, on the other hand, each part, or niche, performs a particular task and the parts are dependent on one another. If we think of an economy this way, we see that manufacturing provides the goods that people use, and also the goods that the service industries are based on. For instance, services such as retail stores are selling goods that have been manufactured. The airlines are using planes that have been manufactured. Even the banks are using computers that have been manufactured.

For most of the 20th century, manufacturing anchored the American middle class. In 1968, manufacturing employed about 25 percent of the workforce, but by 2010 that number had shrunk to around 10 percent. Meanwhile, the income share of the top 1 percent almost perfectly mirrored the fall in manufacturing employment – taking 10 percent of income in 1968, and 25 percent in 2010. This happened because the ecosystem was imbalanced by shipping jobs overseas and firing American workers. Unions, which have been the champions for middle class advances for decades, declined in lockstep with the decline in manufacturing. This evisceration of manufacturing is the root of the decline of ordinary Americans. By taking an ecosystem-perspective, we can see that the core of a policy to revive the economy must be to revive manufacturing -- but we need to think about manufacturing in a new way, too.

Economies are Part of Nature

Beyond the decline of manufacturing, we face a grave ecological crises that threatens the foundation of the economy. The pollution of manufacturing and energy production threaten the climate and the viability of natural ecosystems. On top of this, oil and other essential materials are not limitless, and a civilization based on the assumption of a never-ending supply of these elements skirts disaster.

In order for the economic ecosystem to thrive, we have to rethink our approach to energy, transportation, and the way cities are designed. Currently, we have an energy sector that is extremely dirty, but we could create an energy economy that is very clean and emits no carbon. We can build hundreds of thousands of wind turbines and millions of solar panels that will provide our electricity, and once we have these systems in place, we can power the rest of the system sustainably. But such a system, which will also need a well-thought out national electric grid, needs to be planned carefully so that the national electric system is always receiving wind or sun from somewhere, even though it may not be windy or sunny all over. This means that the government must design such a system.

If we have a renewable electrical system, we can then create a transportation system that is based on cleanly produced electricity, centered on electric trains such as high-speed rail, light rail, subways, and electric freight trains. We can use electric cars, but those cars will be low-speed and short-distance.

Remember, in an ecosystem, the nature of one part influences the other. As the traditional “dem bones” song goes, the head bone is connected to the neck bone, and the neck bone is connected to the back bone, and so on. A clean electric energy system enables us to have a clean electric transportation system; in order to have an electric transportation system, we need to change the density of our cities and towns so that public transit is efficiently utilized.

So let’s return to manufacturing. As we have seen, we could provide clean energy to factories– but what about the pollution? What about all the raw materials that need to be mined, which destroys ecosystems? While manufacturing used to reflect the image of smokestacks and dirt-encrusted workers – and still does in China – in the most developed manufacturing nations, such as in Germany and Japan, manufacturing is high-tech and can be very clean. It is possible to recycle and reuse the output of manufacturing – but only if the government steps in and helps companies to do so.

Assuming we can create a combination of energy, transportation, and city/town and manufacturing ecosystems that are clean, we still have to deal with another key aspect of our economy, our employment problem. How do we do that?  Well, the American manufacturing sector can create all of the wind turbines, solar panels, trains, and building materials that we need. Mainstream economists, however, can't think this way, and they tend to object that such policies violate the sacred tenets of free trade.

This is where an ecosystem approach can trump conventional wisdom. A properly functioning economy needs all of its parts, or niches, to work together. Contrary to what mainstream economists often tell us, it needs cooperation just as much as it needs competition. Any industry needs all of the industries on which it depends to be in close proximity. The automobile industry, for instance, needs thousands of suppliers, from fabrics to steel to electronics. Because all of the firms are close to each other, they can respond quickly to new needs, encourage the kinds of interactions that create technological innovations, and produce new firms and use the resources of old firms. Pulling this system apart makes as much sense as putting the trees and grass of a forest in one area, the deer and birds in another, and the bears and wolves in yet another.

The Government's Role

If we view the economy is an ecosystem, we can understand that government has a role to play somewhat like the Park Service has in managing a national park  For instance, the Park Service re-introduced wolves into Yellowstone Park to rebalance the ecosystem, just as the Federal government needs to rebuild the manufacturing system in the United States to rebalance the economy. The Park Service might protect particular parts of the Park from tourists in order to allow a part of the forest to revive. In the same way, the government may need to temporarily protect a particular industry, with either tariffs or preferably subsidies, until it gets back on its feet. For the most part, government lets the vast bulk of economic activity organize itself, in the best tradition of the free market. But where it needs to, the government intervenes to try to ensure that the economy as a whole, as a system, will not collapse but will thrive.

There is no reason to be cowed by mainstream economists or their conservative allies. Despite what Ronald Reagan and Margaret Thatcher said, there is an alternative – in fact, there are many. Our middle class, the 99 percent, is our living biosphere. And it depends on our ability re-imagine our economy as an ecosystem.
 

 
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