GREEN THINKING AS A NECESSARY, BUT NOT SUFFICIENT CONDITION FOR HAPPY FUTURE

Ivars Brīvers
BA School of Business and Finance,
Riga, Latvia
K.Valdemara iela 161, LV-1013
E-mail: abrivere@td.lv

Abstract: The objective of human actions eventually is prosperity – happiness for all the people. Prosperity is constituted not only by individual wealth but by the environment as well. A typical misunderstanding in the public opinion in Eastern Europe, and particularly Latvia, is overly narrow understanding of the concept of environment – only as the nature environment. This leads to overly narrow understanding of green economics and thereby not sufficient measures of public policy. The paper deals with overview of environmental changes in Latvia during the period of last twenty years, paying attention to social, legal, political, economic and cultural environment herewith the nature environment. The efforts to measure the state of these environments with quantitative measures, usually scalar measure for each aspect of environment (like Gini index for social environment) are not sufficient to make such kind of conclusions like Kuznet’s curve hypothesis. The idea of Kuznet’s curve is discussed, paying attention to structure and pace of economic growth, considering both social and ecological aspects, empirically based on case of Latvia. The possible ways of solution for the problems, which threaten prosperity, are discussed opposing globalization to localization. The main belief is that the problems, which prima facie do not have solutions in globalization, can be solved in small, local economies. The idea of localization, which becomes more popular in Western Europe and North America, still is not taken seriously in Eastern Europe, particularly Latvia. The political environment in Latvia is such that does not encourage true plurality of views and true democracy. The paper deals with the explanation of that situation of Latvia and outlines some possible changes to improve the political environment. Conclusion-making is based on qualitative observation methods.

Keywords: Environment, sustainable development, Kuznet’s curve, social inequality, economic growth.

Introduction

The aim of this paper is to show that the current economic paradigm is outdated and leads to the abyss. The idea that growth will always increase prosperity is cheap, and even economic classics for more than two hundred years ago had warned us about the absurdity of such an approach. Nevertheless this concept is forced everyday on people’s minds by politicians, ruling class economists and mass media. It can be understood, as the financial markets at their present design can not exist without exponential growth. Money is the only thing that can grow exponentially, but hence it needs exponential growth of economy. But nothing else in real world can grow exponentially, and perhaps these people, who gain enormous profits from financial markets, know this. The idea of environment as one of factors of prosperity along with individual wealth is discussed in the first chapter. Environment sometimes is narrowly understood only as the nature environment. This is a mistake, as other dimensions of environment – social, cultural, religious, ethnical, political, legal are of the same importance. The second chapter deals with the Kuznets curve hypotheses – both in social and nature environment aspects. It shows, that the decrease of economic activities in the early nineties in Latvia may be considered as a reason for improvement of the nature environment, and the following economic growth did not harm environment in that dimension, as it took place mainly in speculative sectors of economy. But the negative effects of that process with double strength affected social environment, worsening it in such a degree, that thousand of people are escaping from the country. As it is shown in the third chapter, the main reason for degradation of social environment is people’s confusion about the values. That chapter contains an effort to determine these values. The fourth chapter explains the specific political environment in Latvia, and outlines localization as an alternative way to better future. The methodology of the conclusion making is based on qualitative evaluation of processes that determine different dimensions of environment. Not denying the quantitative approach, it is pointed out that the usual approach measuring different aspects of environment by a scalar, and than combining them in one “complex” scalar, may lead to conclusions, that are too simplified.

1. Paradigm of growth, prosperity and the significance of environment

For more than 200 years we have been living under the paradigm of growth. As it is mentioned by Ernest Schumacher in his Buddhist Economics, we are “used to measuring the "standard of living" by the amount of annual consumption, assuming all the time that a man who consumes more is "better off" than a man who consumes less”. (Schumacher, 1973) The concept that considers, that the problem could be solved, reducing consumption and increasing production over is even more absurd. Even Adam Smith in his “Wealth of Nations”, (Book IV.8.49) has famously pointed out that “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.” (Smith, 1776) Thus the efforts of the present economic paradigm, telling us that “production is good thing, but consumption not” is based on false premises. The beginning of the XXI century clearly shows that the World has significantly changed. In the “affluent society” the way of thinking, which assumes that “more is better” is in contradiction with the processes in real life, and the economic growth does not contribute to the increase of prosperity in most of the Western World. Still people’ minds are obsessed with the idea of growth, which is rekindled by the “mercantile system” i.e. financial speculators and big businesses, for whom economic growth is a necessary condition for maintaining their high profits making money from money without the mediation of products. Still the real standard of living is not increasing, and more and more people fall into depression, suffer from mental diseases, alcoholism and drugs. At first in may seem paradoxically that countries with high indicators of standard of living, such as GDP per capita, has even higher level of problems mentioned above, compared to countries with lower indicators. But can be explained, by the fact that individual wealth is not the only factor of prosperity. Let us return again to Smith (WN, Book IV.I.1.): “Political œconomy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.” (Smith, 1776) It is risky to interpret Smith, but one may consider that Smith has meant by “public services” somewhat much deeper and wider as only government expenditures – the environment Prosperity is constituted not only by individual wealth, as it is considered by the present economic paradigm, but by the environment as well. Environment should be considered not only in the sense of nature, but social, legal, cultural, ethnical, religious, etc. as well. Let Y – prosperity, M – individual material (and non-material) wealth, N – environment, then Y = f (M, N)

If we rest on analogy with the 1st Gossen’s Law in microeconomics, this function is increasing and convex. The present economic paradigm considers prosperity as a one variable function: Y = f (M). In such case the increase of M will mean the increase of Y. But, if M will increase and N will not increase (but rather decrease), then ∂Y/∂M will permanently decrease, but ∂Y/∂N permanently increase. If the increase of M brings the reduction of N (economic growth at the expense of environmental degradation), then the increase of M can occur not only as a slight increase in Y, but even as a decrease in Y. It is wrong to assume the economic growth as the main objective of economy. Growth itself is neither a good thing nor a bad thing. In nature things are growing without assistance, but the wisdom of nature is that they know when to stop growing. The basic principle of the new paradigm is the same – economies both in a micro and macro levels grow, until they reach the optimal level. Then growth stops, but development doesn’t stop. The main attention is paid to the maintenance of the environment (not only in the sense of “nature”). The attempts to solve global problems in the framework of that paradigm possibly are going to fail. This reasoning can be discussed in various aspects – ecological, social, moral and economic. Twenty-first century events lead mankind to realize that the way chosen by the last century, has been dangerous and threatening for its future. The growth paradigm, based on greed and envy, has proven to be outdated and inappropriate for its time. Still the World lives under a severity of the recent economic crises, which hardly can be considered being overcame. Approximately 11 trillion dollars have been paid to “overcome the crises”. It means that each human being living on the World, including babies and inhabitants of the Amazon jungle, has paid in average 1500$ to save the present economic paradigm. But the present crisis is not only financial or economic crisis. It is a historical crisis. The way out of the crisis could be found only if people change the usual ways of considering things.

2. Kuznets curve hypothesis and social-nature environment in Latvia

The Kuznets curve hypothesis is based on assumption that if country is moving through a stage of rapid economic development, it is accompanied at first by an increase of social inequality, which then decreases after a certain level of development is attained. Kuznets curve hypothesis can be formulated also viewing the nature environment – economic development first degrades the environment, and then the process turns in opposite direction reaching a certain level of development. Let us consider an empirical testing of these hypotheses for Latvia. For quantitative analysis of Kuznets curve hypothesis it is necessary to measure the quality of environment (both social and nature environment) and finally reduce all these quantitative indicators to one complex indicator, as it is usually done by the econometrists. Without denying the possibility of such an approach, it can not give a perfectly adequate conclusion. First, because of any measures of quality of social or nature environment, such as Gini index, water and air pollution indicators etc., almost always are based on sample observations, and necessarily are based on some methodological approach – for instance, Gini index usually considers income (flow) inequality, but does not take into account the current property of households (stock). Second, the attempts to unite all these indicators into one complex indicator always is a losing game – it is the same as if a doctor should try to measure the health of a patient with one single indicator, no matter how skillfully it would be created. Thus the Kuznets curve hypotheses are tested here, based not on a quantitative analysis and econometric methods, but on qualitative evaluation, based on personal impressions, on public sentiments, and on facts on events, which result from the quality of social and nature environment. Kuznets formulated the idea of correlation between economic development and social inequality is his Presidential address delivered at the Sixty-seventh Annual Meeting of the American Economic Association, Detroit, Michigan, December 29, 1954. Here he was speaking not about economic development, but economic growth. (Kuznets, 1955) Though from the Kuznets text one may conclude that indeed Kuznets was considering economic growth in a wider sense, which in modern context is more usually explained as economic development. At the time Kuznets published his ideas, perhaps these two different notions were considered as the same, still only ten years later there arose voices, challenging the contradictions of these two economic processes (Boulding, Schumacher). Kuznets curve takes economic development as an independent variable. Usually, at least in Latvia, economic development is measured by the same indicator as another process – economic growth: increase of GDP. Considering this indicator, economy of Latvia shows unique tendencies – rapid growth periods followed by short periods of huge decline. The Latvian GDP graph looks rather as a sinusoid. The time periods from 1995 till 2003, 2004 till 2007 and 2011 till 2013 are usually considered as the periods of economic development. In fact, it might be questioned, considering this process as economic growth without economic development. Time period from 2004 till 2007, when the economic growth was record high – more the ten percent per annum, slightly after was criticized even in the governmental level – the economic growth was accompanied by three times larger increase of the foreign debt. Still let us consider that during these time periods Latvia indeed was passing through periods of economic development, though for an adequate testing of Kuznets curve hypothesis this aspect should be taken much more detailed, at least taking into consideration the structure of economic growth – sectoral, social and regional. The nature environment in Latvia in general is good. It is surely better than it was twenty five years ago. Then the indicators of water and air pollution were not published officially, but there were warnings not to swim in the Baltic Sea, some cities were considered ecologically hazardous. Though the amount of cars in the downtown streets was significantly less then it is now, subjective assessments of air quality in the city centre leads to the conclusion, that now it is cleaner and better. Do these facts show that Latvia has passed the peak of the environmental Kuznets curve, and now is on the downward sloping edge of it? Probably not. It is more likely the result of the rapid recession during 1990-1993, when a large number of factories and plants, most of which were not environmentally friendly, were closed, and the passenger and cargo volume dropped significantly. The effect was more like the inverse Kuznets curve. The following years of economic growth did not significantly increase the negative effects on nature environment mainly because of the structure of this growth – it was mainly in speculative sectors of economy, and branches connected to it: real estate affairs, financial intermediation, insurance, etc. That was an example of rapid economic growth without significant damage of nature environment, but taking into account the new ecological standards of production, car exploitation, fuel quality, etc., the quality of nature environment rather improved. However, it can not be taken as a success, as the negative impacts of this process did not disappear, but were transferred to the social environment, which has dramatically worsened during the last twenty five years. Even quantitative indicators of the social environment show that Latvia is among the countries with the worst social environment in Europe. According Eurostat, Gini index in Latvia in 2012 was the highest among all the 28 member countries of the European Union. (Eurostat, 2013) The fact that economic growth in Latvia was based mainly on real estate bubbles and speculative ventures had a significant negative influence on economical environment, reducing the potential of economy, losing the economical independence and creating an unhealthy structure of economy. But even worse was the impact of that process on system of human values, which are the fundamentals of social environment. Subjective assessments and public opinion indicates that the state of the social environment is even worse. Speaking with a successful Latvian entrepreneur, who had his business for more then ten years in Ukraine, travelling through villages and small settlements in this country, he told, that the average standard of living in Latvia surely is higher then in Ukraine, but he has never seen such poverty in Ukraine, which he has seen in Latvia. The fact that more than 300 thousand mainly young Latvians have left their country is usually explained by the income difference in Latvia and their new abode. This is only one and surely not the main factor of this migration process, though the emigrants may explain their decision by this circumstance. Indeed a person perceives the environment as a permanent matter, and does not notice the changes in it rationally, but rather feels these changes as something imperceptible. “Nothing changes daily, but everything has changed through the years” – this dictum also applies to the changes in the environment. The quality of the social environment surely may be even most important factor of the mass emigration process from Latvia. This does not obviously mean that the social environment in countries of their new settlement is necessarily better – simply the emigrants are by the light of nature seeking for another social environment, and the new environment is different therefore at first it seems better. The main cause of the present social crisis is that people are confused about the basic values of life. Human development significantly lacks behind the technological development it thus the hopes on escape through technologies may turn out to be an illusion. The innovative ideas in the financial markets in different forms of financial pyramids and “Ponzi schemes” have caused a situation where people understand that earning their income with labor is for losers. Young people mainly go to study “business”, not because of their interests, but because they see, that it is their best bet not to be a loser.

3. The role of values in the quality of the social environment

The main reason for the collapse of the social environment is the confusion about the real values of life, which, whether intended or not, have been flouted and replaced by surrogates. To destroy nation physically one has to kill all the people belonging to the nation. It is almost impossible. Another way is the destruction of morality, imposing on people false values instead of the real ones, which have been on the bases of the nation’s life over one hundred years. The values of the Latvian nation are expressed in our cultural heritage – folksongs and works of the writers, poets and philosophers. Currently, these values are flouted by calling them as conservative and outdated. If the nation loses its values, then the currently nascent children will be the last representatives of the nation. To assure the sustainability of the nation’s life, it is necessary to remind people of the true values, to avoid losing the virtues, which are based on these values and determine behavior of the nation. 1. God. Human beings are not just flesh. A human being has a soul. The realization that our existence in this world is not accidental that it consists of a single chain targeted process is that which defines our purpose in life. After losing that sense, a person loses the true meaning of life, either by replacing it with a surrogate, or sinking into depression and sometimes even committing a suicide. 2. Nature. Man is part of nature. Even city dwellers associate the happiest moments of their life with the sea, forests, mountains and other natural forms of beauty and majesty. Nature is a reminder of the fact that every living creature has its place in the world, the benefit of which may at first not be noticeable. 3. Labor. Being tired, people can sometimes perceive labor as a necessary burden to ensure existence. However, prolonged inactivity causes discomfort and a feeling that something is missing. Work, which a person likes and in which he sees sense, gives him joy and sense of happiness. 4. Family. A person needs an environment, where he is staying day by day, feeling freely and safely, and calls it home. A union of man and woman is the basis for such an environment and implementation of the meaning of life. Words “mother”, “father”, “husband”, “wife”, “child” are sacred, and any efforts to substitute them by more sophisticated concepts is the most dangerous threat to the social environment. 5. Nation. Although a person prefers his own personal interests, there are occasions when he needs to sacrifice them to the interests of society. If it were not so, the human race would not survive. Nation – a community of people living in a certain territory, over the centuries has developed virtues without which a waiver of the personal interests for the benefit of society is not possible. Such virtues are largely determined by the environment in which people live. Forcing one's virtues to other nations will never lead to a good end. 6. State. The state should provide conditions for the prosperity of the family and the nation. Truly independent state’s first priority is the interests of its citizens. State may also act as a dummy, which has its own symbols, but the interests of citizens are not the first priority. 7. Language. Words are not just a random series of letters. The true nature of things is encoded in them. A person formulates his thoughts in words. Without understanding the essence of things encoded in words, there will be no essence in thoughts. Each parson has one native language. It's good to know many languages; however, this does not constitute a waiver of one’s native language. The set of these values determine the social, cultural, religious and ethnical environment in which we live. The distortion of this environment poses a serious threat to our well-being not less than the loss of personal wealth or even distortion of the nature environment.

4. Political dimension of the environment and the alternative way for the future

How it may happen that people allow their governments to spoil the social environment for a long period of time? For twenty years Latvia is ruled by politicians, for whom Latvian national interest is not the first priority. The same politicians under different names of political parties care about economic growth by any means, and other dimensions of development for them are of less importance. Perhaps in Latvia it is easier for them to keep power than in other countries for the reason of ethnical confrontation that indeed is nonessential in the society, but is incited from the politicians from both ethnical sides. The existing five-percent barrier in parliamentary elections, which is in contradiction with the Constitution of Latvia, together with the false ethnical confrontation creates the following situation. The ruling class politicians through the mass media make believe that, “if you will not vote for the “big parties” (i.e. these, who are at power), your vote will be lost, and the party of other ethnical group will come to power.” This works, and though people are unsatisfied with those politicians, who are at power, they vote for them, because the real alternative will be even worse. The idea of a President, who will have not only decorative functions, and who will be elected in all national elections, seems to be rather popular, and is supposed to have a positive shock on the political system of Latvia. But because of the specific situation of Latvia the traditional system with two candidates in the last round of elections for the same reasons will not be effective. But a more effective system with three candidates in the last round is rejected, because “it has not been adopted in other countries”. Still there might be a way out of that multidimensional crisis – to make the things natural. It can be done in small, local communities. The idea of localization becomes more popular in the whole world. “Buy local” campaigns, priorities for local food, local financial systems, like Volksbanken and Raiffeissen banken in Germany, local currencies, family and lifestyle enterprises, employee-financial-participation models etc. are the first steps in this direction. In local community it is much more difficult to steal, cheat take bribes. In local community the level of social inequality will be natural, it will not increase perpetually. The most important is that in small community the common understanding of the true values is much more realistic than in the globalized society.

Conclusions

Green thinking may be defined as the care for the nature environment. In this case it is wrong to consider green thinking as a sufficient condition for sustainable development. It is necessary to take into account other dimensions of environment. The case of Latvia shows, how it is possible, that the negative impacts of economic growth on nature environment are transferred to social environment, thus worsening the environment in general. Human values are the fundamentals of social environment. Each nation has its own system of values, and efforts to substitute them for some “universally human” values will only destroy the existing system, thus harming the social environment. The way to avoid the all of humanity-threatening problems, caused by globalization, is return to the natural order of things, which is possible in small, self sufficient societies. This in no way means the abandonment of cooperation, friendly contacts and mutual respect between different communities. But the fact that any community is strong enough to ensure its life without perpetual necessity for help from outside will be the true guarantee for peace and friendship in the whole world. The change of compass arrow from globalization towards localization might be the right direction for the way to better future. Gains can be increased either increasing benefits, or reducing costs. For last two hundred years it was assumed that the first way is natural, and the second is an exception. Now it is time to get rid of this conventional wisdom, and to recognize that the second way is much more efficient in all the levels – household, enterprise, national and global.

References

1. Kuznets, S. Economic Growth and Income Inequality. // The American Economic Review, Vol. 45, No. 1. (March, 1955), pp. 1-28.
2. Schumacher, E.F. Small Is Beautiful: Economics as if People Mattered. London: Blond & Briggs, 1973.
3. Smith A. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations. 5th ed. London: Methuen & Co., Ltd., 1904.
4. Eurostat. Gini coefficient of equalized disposable income (source: SILC) http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tessi190 (assessed November 15, 2013).