Mainstream economics is lost, and the price is political chaos

Jo Swinson is the director of Partners for a New Economy and a former Liberal Democrat government minister in the U.K.

Britain’s former Prime Minister Liz Truss was right about one thing: Economic orthodoxy is a real problem.

Unfortunately, her prescription of tax cuts for the rich and encouraging casino banking was disastrously wrong. Yet, neither current Prime Minister Rishi Sunak or nor Labour leader Keir Starmer will solve the United Kingdom’s problems if they conclude we need a return to austerity or that there’s no space to be bold — especially considering the rapid energy transition we need.

And politics will continue to flounder at its core task of making people’s lives better until economics catches up with 21st century challenges.

The roots of Britain’s present political chaos go at least two decades back, to an apparently booming ecnomy leaving many places and people behind. Discontent was masked, for a time, by the government of then Prime Minister Tony Blair boosting public spending — but the financial crash hit hard.

The markets demanded austerity, and back in 2010, my Liberal Democrat colleagues and I deferred to the economic orthodoxy that deficit reduction was paramount. Given the Conservatives’ reluctance to raise taxes on the wealthy, however, our public services and those on low incomes were left shouldering far too much of the burden.

But actions have consequences. And cuts in the name of “efficiency savings” left our society far less resilient.

Personal protective equipment stocks were depleted when the coronavirus pandemic hit, leaving our front-line health workers shamefully unprotected. Harsh wage restraint —though, tellingly, not at the top — made lives harder, leaving society more vulnerable to the divisive tactics of the far right and to rhetoric scapegoating migrants.

This is not a uniquely British phenomenon, of course. Brazil, France, Germany, India, Italy, Sweden, the United States and many more — they’ve all seen significant polarization and populism, with the far right gaining ground. Even when a more consensual politician edges ahead, slim margins are just a precarious step away from the brink.

The problem is one that’s well diagnosed, whether expressed in former Prime Minister Theresa May’s speech on tackling burning injustices, former Prime Minister Boris Johnson’s “levelling up” rhetoric, or former Labour leader Ed Miliband’s call for “predistribution.” However, instead of harking back to history for solutions — whether via former Labour leader Jeremy Corbyn’s brand of socialism or the Truss flashback to Thatcherism— we should be firmly focused on the future.

It’s time to move beyond GDP as a proxy for progress, and to end our obsession with a metric that has flaws which have been obvious since well before 1968 U.S. presidential candidate Robert F. Kennedy made the memorable critique: “It measures everything in short, except that which makes life worthwhile.”

The arguments are well rehearsed — and many: GDP ignores much of what matters most; disasters make GDP go up; it tells us nothing about who gets what. For living things, growing is helpful and desirable only up to the point of maturity. And as a society, we need to support growth of other things — our health and wellbeing, the abundance of nature in our parks and green spaces, the flourishing skills and self-esteem of our young people, as well as our collective curiosity, creativity, care and cooperation. We are, by nature, social animals and cooperation is humanity’s defining strength.

The pandemic taught us what really matters — if we care to learn the lessons. The race to create vaccines was achieved in record time through unprecedented cooperation between governments, scientists and business. The virus was slowed by remarkable public solidarity. And we each saw the value of things that cannot be measured by money. Lockdown restrictions we eased to allow household bubbles — not for the sake of our economy, but because we realized you can’t put a price on a hug.

Yet, as the rainbows in our windows fade, the essential workers we clapped for are clearly underpaid and undervalued, and the younger generation who gave up so much for their seniors feel they’re facing a bleak future. These problems were evident before COVID-19, but they are inescapable now. The current path of economics has broken the social contract, which is in desperate need of repair.

And while we’re at it, we need to rethink stability as well. Economists assume we’re always drawn toward equilibrium, but as we leave the Holocene period of Earth’s history and enter the Anthropocene, we face a far more uncertain future, with shocks such as floods, fires, droughts, storms and pandemics set to become more frequent. Yet, economics is willfully ignorant — catastrophically so — when it comes to the environment’s crucial role in our economy.

Current economic models are far too simplistic — they don’t acknowledge the full consequences of climate change, and precious little attention is paid to the multiple ecological warning signs on species extinction, nitrogen and phosphorous flows, land use change and chemical pollution. Environmental literacy must be essential for economics, as economist Professor Progar Dasgupta powerfully set out in his 2021 review for the U.K. Treasury.

Rather than only assessing ecological disasters’ risk to financial assets, we should focus on the more material risks the financial system creates for our planetary home.

Economists should also show some humility. Whether it’s the invention of “warmbanks” while energy companies make record profits, 30 million people being displaced in Pakistan by flooding or last summer’s extreme heat giving the London Fire Brigade its busiest day since World War II, people don’t need a degree to see the disconnect between current economic theory and their own lived experience.

Luckily, there are plenty of pathways to a future where our economic system can play a positive role in regenerating our planet and nurturing its people.

For example, the work of Nobel-winning economist Elinor Ostrom and the field of ecological economics have much to offer on how to steward limited natural resources. And as demographic changes challenge labor markets, feminist economics also gives a fresh perspective on how to value care work — both paid and unpaid — as the very foundation of all other economic activity.

While keeping an eye on the longer time horizon is notoriously hard in both business and politics — given the constant short-term pressures of quarterly reporting and frequent elections — here, corporate governance rules could be changed to give employees, and nature, a seat at the table. And the pioneering work of the Future Generations Commissioner in Wales can provide inspiration for present-day political accountability to our children and grandchildren.

Escaping the demand for endless economic growth and natural resource use is also a tricky conundrum for sure, but even here there is cause for optimism. Professors Jason Hickel, Julia Steinberger and Giorgos Kallis recently won major European Research Council funding to explore economic post-growth pathways, and with next week’s Beyond Growth Conference at the European Parliament, the issue is firmly on the agenda at the EU’s highest levels.

Finally, on reframing the fundamental question of what economic policy is for, Professor Kate Raworth’s idea of “Doughnut Economics” is both simple and compelling: Design an economy that operates within the two rings of a donut — the social foundation of everyone having access to life’s essentials, and the ecological ceiling of planetary boundaries.

Of course, no one’s suggesting putting all this into practice is easy. Challenging orthodoxy risks ridicule, and supporting the status quo seems the safer bet — even when that path crashes through social and environmental tipping points. Not all ideas for change will work, and others may make sense but be unpopular. Meanwhile, vested interests are powerful, and they are ready to defend their position.

However, these ideas are exciting, and the course is there to be charted. It is the actions of each and every one of us — whether as academics, business leaders, activists, journalists, thinkers or citizens — that will either move us further down the current dead end, or help find a better path to an economy that’s fit for the future.