IN LONDON, 1984, and Bonn, 1985, the leaders of the western world gathered for their annual Economic Summits. There also gathered the leaders of another, incipient world - in The Other Economic Summit. They had the orthodoxies of the West, and of the East, in their gunsights. For they were expounding the New Economics.

They have now opened fire: "The Living Economy, the book of the TOES conferences, has been published. How accurate is their aim?

The New Economics is an attempt to lift orthodox economics out of the shackles of outmoded values and assumptions and into "a different perception of reality itself." TOES' Director, Paul Ekins, once General Secretary of the UK Green Party, claims that this involves "a change in outlook as fundamental as, say, the Copernican revolution in astronomy."[1]

Its intellectual forebears are Leopold Kohr's insights into the relevance of scale for human activities, and E.P. Schumacher's quest for a "synthesis of economic laws and spiritual values"[2] - a reborn economics, "as if people mattered."

Its concerns are not directly with material influence but with "personal development and social justice, the satisfaction of the whole range of human needs, sustainable use of resources and conservation of the environment."

But Ekins argues that its "newness is not just in a normative sense... it also applies to positive economics, the study and measurement of economic 'reality'."

It is here that he is firing from shaky ground. Though he has bravely forged together some 50 papers from assorted practical, academic and national backgrounds, he is himself not formally trained in economics. The following remarks are intended as a contribution towards firming up the analysis.

Ekins writes: "a major break with conventional economic thinking is a commitment to economic self-reliance ... the antithesis of much of the thinking behind the growth economy. Specialisation, ... the theory of comparative advantage - these formed the intellectual organisational backbone of the industrial revolution... The free market... provided a theoretical basis for ... the global economy of today ... characterised by, among other things, over-specialisation, fragmentation, inequity, disadvantage, and a debilitating dependency: of peripheries on centres, of some countries on other countries, of people on the system'."

One can only wish that he had digested the writings of Galbraith, who was pioneering the New Economics a quarter of a century before, but whose contribution is unacknowledged here.

Galbraith points out that "The emphasis on growth developed as the economy and the polity came to be dominated by the large firms …corporations, trade unions and the government have all united to impair or destroy the competitive or neo-classical market."[3]

Ekins himself quotes: "Transnational corporations now control one-third of gross world production; 40% of all world trade is intra-firm (i.e. between firms within the same TNC.)." And he observes: "covert protectionism is rampant everywhere."

At least three of the papers are more enlightened, however. In a key paper, "On the Theory and Practice of Self-Reliance", Johan Galtung pronounces that "Nothing in self-reliance is against trade provided it takes place according to these rules:

"1. The exchange should be carried out so that the net balance of costs and benefits, including externalities, for the parties to the exchange is as equal as possible ...

"2. One field of production - production for basic needs - should be carried out in such a way that the country is at least potentially self-sufficient, not only self-reliant."

Taking the second rule first it need only be noted that the "agribusiness" promoted by protectionism serves to destroy the natural fertility of the soil, whereas the more organic agriculture that unprotected farmers have to rely upon builds it up.

The first rule tackles what is indeed the most telling criticism of laissez faire theory - that in a competitive world it is not absolute gains from trade that count but relative gains. The poorest country may well benefit - minimally - but the gap between it and the richest country may well go on widening.

Wolfgang Sachs, a theologian and sociologist by training, latches on to this in "Delinking from the World Economy": "in the long run ... it is the country offering more complex products which benefits by internalizing the spin-off effects of more sophisticated production: pharmaceuticals stimulate research and complete processing technolologies, whereas coffee beans don't!"

We have seen in recent issues of Land and Liberty how Ireland's economy regressed when it exploited its natural advantage in exporting livestock for the benefit of landowners to the exclusion of labour and capital. We have also seen how the key to retaining value-added processes in the peripheral economy is to redistribute the annual rent of the land for the equal benefit of all.

The point is that trading systems the world over at all scales are based on the expropriation of the land rents of dependent peripheries by powerful centres. And, at all scales, the economic answer is to redistribute those rents. That is

• To publicly collect the location rents of the centre for the equal benefit of all (the net benefit of the periphery);
• To publicly collect the resource rents of the periphery for the equal benefit of all (the net benefit of the periphery).

For the centre grasps both its own land rents and those of the periphery. The corporations that suck away the primary wealth of the peripheries enjoy free land and so either retain the land's rent or pass it on in lower prices to western consumers. Or they pay the rent over to the periphery's land-owning oligarchies (notably, OPEC's leaders) which then spend it on imports from the centre.

The world's "debt crisis" is due to these land-owning elites taking out loans (notably, petrodollars) to further the process, and then imposing austerity programmes on the poor in order to service them.

A free trade/land redistribution amalgam would tend to

• Lower wages and interest at the centre by allowing peripheral workers and capitalists to compete with those at the centre, and
• Raise incomes at the margin by recycling rents to the marginal producers. Where the mass of the people are at the subsistence level, the land's surplus is the only possible primary source of savings and capital formation.

GIVEN that a "sound system of land tenure" based on the recycling of land rents is in fact promoted as "one of the most important" policies of the New Economics, it is ironic that its link with poverty should be missed.

Ekins sees only the "unfavourable situation for labour" at the centre, and proposes "delinking from the international market" (which is "very different from introducing protectionist measures").

Sachs is concerned at the plight of labour in the South (a periphery) and suggests "the magic question" is "how to avoid buying in the North?" (a centre). For "there seems to be no other way to lay the groundwork for a self-sustained growth, which will eventually turn all strata of the population into market producers and consumers."

It is refreshing, therefore, to read Frances Stewart and Ejaz Ghani's paper on "Alternative Trade Strategies": "From a developing-country perspective, genuinely free access to developed country markets would offer an enormous extension to markets."

The doctrine of laissez-faire as promulgated by western industrialists and politicians has, of course, always been a truth only half-applied (to exports to poorer countries, but not to imports from them) rather than a half truth wholly applied.

Published on the centenary of Henry George's Protection or Free Trade, The Living Economy begins on page one with the same "paradox" as George began with: "the continued existence, even in the richest societies, of poverty with progress."

Yet George came down on the side of free trade - with "land value taxation" ("a tax only in form, being in nature a rent" securing "treatment of the land as the common property in usufruct of the whole people"). "Free trade does, indeed, require this ... the two reforms are thus absolutely identical."

Smith, Ricardo and Mill before him were well aware that land is a special case, as is the Secretary of the British Free Trade League today: "The distinction that needs constantly to be made is between the capitalist or owner of productive artefacts and the freehold owner of the land itself, out of which everything else must come."[4]

On the high seas of political controversy, however, "land value taxation" was cast adrift by orthodox economists and allowed to flounder. But once the "new economists" realise that it is an integral part of free trade theory then they should see that free trade does not require dependent peripheries specialising in vulnerable mono-products for the benefit of the centre.

Instead, it would rejuvenate economies from the bottom up; local economic regeneration and self-reliance would be kindled.

THE PAPER from the Briar-patch Network of small businesses in San Francisco claims that its "database" stands "much conventional economic theory on its head." What it really shows is that mass producers can be out-competed at the local scale through superior provision of "factor N" - honesty, personal contact, quality - the non-price component of transactions.

"Competition is a poor model of the real world; co-operation and niches are more accurate," it concludes. But this is the way that free trade - the law of the jungle, nature's living economy - actually works. Niche differentiation - the minimisation of competition through the provision of unique services - produces diversity, stability and productivity. This is how the Earth supports five or 10 million species, mainly small, each making its own living, wresting the maximum biomass from the resources available. Only the intervention of Man, with his special dispensation, threatens that process.

The one substantial criticism of free trade in Stewart and Ghani's paper is that it involves "technological dependence ... because it is necessary for countries to keep up with ... technology change, if they are to compete internationally."

They quote the example of the Intermediate Technology Group's attempt to produce a small scale, low cost egg-tray packing machine. It was found that in the end the only competitive model was as "inappropriate" as those they were trying to replace.

What this demonstrates is that competition does its job - selects the most suitable means for the end. The secret of "appropriateness" is to diversify into those niches that competition has not reached; to breathe new life into those parts of the economy from which the growth-men are excluded.

The paper on the Green Belt Movement among Kenya's women provides a telling example: wasted labour and wasted land are being rescued through tree-planting to rescue the country's basic raw material; rescue its nutrition through rescuing its fuel for cooking; and raise the status of women. Were Kenya's land rents to be rescued from its private landowners how much further could public goods provision and public employment go!

THE LAND reform chapter, in fact, forms the pivot of The Living Economy, commencing the practical half of the book. This is chronologically significant, as James Robertson notes: "The conventional path of development creates dependency ... Historically, it starts by excluding people from access to land, and thus makes people dependent on paid labour or cash handouts for the money to meet needs formerly met by ownwork."

Shann Turnbull discusses cooperative land banks, which are a Trojan horse for land rent recapture and local democracy within the present system. Her business model provides a clear picture of the economic principles underlying the land stewardship versus ownership issue, which apply equally at the local, national, and international scales.

Fred Harrison succinctly summarises the social, economic and ecological implications of "land value taxation" (LVT), and assesses its practicability.

One wishes, however, that he had been further consulted regarding the links between LVT and the rest of the economy. It is only subsequently mentioned in order to encourage the informal economy.

The "blinkered, binary language of 'jobs' and 'unemployment'" is scorned by the New Economists. The informal economy - small scale, flexible, socially aware - is glorified as the "true safety net" underpinning the formal economy, and the present social security system is seen as an obstacle in its way. Much is therefore made of an unconditional basic income guarantee - "minimum economic rights" - for all individuals in order to abolish the present disincentives to low paid work.

It is admitted that this would require a "substantial" additional tax burden, however, which is where LVT comes in. Steven Cord's calculation of the land and resource rent of the USA has been noted, suggesting that the public haul would be "enough to replace all taxes on labour and capital, apart from user charges ... [with] no disincentive effect on production, rather tending to bring land into use ..."

Given such potential, one is entitled to ask why the formal economy is virtually written off in the first place? It is said to be straining against increasing resource scarcities, capital scarcities, and environmental and social costs.

The savings required to finance the new technologies are unlikely to be sufficient "to generate growth fast enough to absorb shed labour." Jobs will become increasingly the monopoly of a "technocratic elite", and more taxes into fewer jobs to support the "drones" will not go.

This scenario can certainly be challenged. Rofie Hueting, a leading environmental statistician in Holland, notes in his paper that "it cannot be shown for certain on scientific grounds whether a lasting emphasis on the growth of production leads in the long run to disastrous exhaustion of the environment."

Methods of internalising externalities in firms' business accounts, and deducting other externalities from the national income rather than adding them in are also devised. More savings and more taxation into higher national income, not fewer jobs, is the relevant calculation. And taxation itself can be better tailored to future requirements.

It is emphatically argued that "an undeniable result of placing the tax burden most heavily on income, and therefore on jobs, through income tax and National Insurance, has been discrimination against labour with regard to the other factors of production - capital, land and resources ... Mechanisation and automation are, therefore, not mechanisms that are powered by free market considerations alone."

Unfortunately, this argument is fallacious, as E.J. Mishan, a "new economist", has shown.[5] The relative costs of labour and capital are unaffected by imposing taxes on labour alone. All capital embodies labour, and the capital-intensive firm that escapes the direct tax burden finds that increased capital costs restore parity with the labour-intensive firm.

Shifting the tax burden "on to the use of capital and resources ... to allow fairer competition between people and robots", would work, however. But it would reduce productivity and, hence, income levels, which hardly suggests, as claimed, that failure to advocate this "has been a blind spot in the labour movement."

The only tax which does promise a way out of this conundrum is LVT. This is because, as we have seen, it is not a tax at all but a rent. Public rent "crowds out" private rent and so does not increase production costs, as the Cord reference indicated.

In the USA, at least, the whole of the present "tax wedge" could be eliminated. Land rents would rise in consequence (of greater effective demand, not tax shifting) but this would mean further public revenue which could be used to enhance international competitiveness or, given a more participative democracy, to employ people producing "public goods".

Thus the New Economics offers hope for the formal economy (if it did not, how could a basic income scheme be sustained?) Nevertheless, there is a conscious preference for the informal economy.

In the concluding ten-point agenda, chosen for its immediate practicability, a Royal Commission on the basic income guarantee is included but not one on LVT. Obviously the latter is too much of a threat to the bastions of orthodoxy.

One interesting idea, however, is raised in relation to basic incomes. That is to take the collateral of property out of credit creation in order to short-circuit a vicious circle of inequality in wealth ownership.

The already-wealthy monopolise the future ownership of capital by monopolising current credit-worthiness (as well as retained earnings). The government could step in to pre-empt credit creation by guaranteeing loans to every family.

Stuart Speiser's Super-stock plan envisages that 20 years' worth of credit in the USA would yield 50m American families $20,000 p.a. each, reducing the share of the top 6% of productive asset owners from 95% to 50%.

Combined with LVT, which short-circuits the other vicious circle in productive asset ownership, this would "entail wide participation in the fruits of new technology." And unlike other basic income schemes it would be self-financing, involving no transfer payments out of the formal economy, just redirecting the ownership of new capital assets.

THE NEW Economics certainly has a strong normative stance. But does it know anything in a positive sense which the traditional economics spectrum does not? I am not convinced - though its work on scales, for example, is important.

It contains much of the decentralised socialist anthithesis to state capitalism. But it is more environmentally aware, and has a more catholic taste in modes of production, allowing a reformed market place to solve many problems.

It would be a mistake, however, to think that the New Economics is a unified entity. Being a good editor, Paul Ekins has been fair to all his contributors and attempted to forge "a coherent, consistent theoretical framework." But Wolfgang Sachs distinguishes two camps among them - the reformers and the radicals.

"On the one hand are the environmentalists ... they are the avant-garde of eco-capitalism and self-help welfare. On the other hand, those who might be called eco-decentralists insist on inverting superstructures and revitalising the self-reliance of local communities ..."

Sachs ranks himself with the latter, and Ekins, by his remarks on free trade, is clearly in sympathy. Perhaps this is why he believes in the "new species"? But it would be nearer the truth to suggest that the New Economics is in fact the old species devolved - to a state where limbs atrophied by neglect are re-used and strengthened. Amongst these are:

• Classical Economy's labour theory of value (as perfected by George[6]). This suggests that workers are not receiving their rightful share of what they produce.
• Classical Economy's macro-distribution of wealth between the factors of production. This suggests that land rent is an unearned income.
• The Neo-classicals' law of diminishing marginal utility. Applied to incomes, this suggests that measures to equalise incomes tend to yield greater total welfare than those which make them more unequal.
• Pigou's distinction between private costs and social costs.
• Diseconomies of scale.

This moral stance is greatly to be welcomed. It is a pity that the issues are obstructed in the shop window by unnecessarily damaging advertisements, such as

• that the New Economics is against economic growth. In fact, it merely realises that "increased consumption in a context of sustainability can only be achieved by making better more efficient use of a sustainable quantity of resources, rather than by increasing overall throughput";
• that it despairs of the formal economy. In fact, it contains measures to overcome its weaknesses;
• that it is against free trade. In fact, it is against external creation of dependency.

For if the New Economies' proposals are to carry any political weight, which is their objective, they must take account of the haves as well as the have-nots. 29

REFERENCES.

[1] P. Ekins, ed.. The Living Economy, Rout-ledge & Kegan Paul. 1986, p.xviii. Ppbk: £8.95.
[2] Ibid., Foreword by Christian Schumacher, p.xii.
[3] N. Salinger and J.K. Galbraith, Almost Everyone's Guide to Economics, Penguin, 1981, p. 154 & p. 52.
[4] Oliver Smedley, What is Happening to the British Economy!, The Reliance School of Investment, 1976, p. 83
[5] E.J. Mishan, 21 Popular Economic Fallacies, Alien Lane, 1969, ch. 2.
[6] V. H. Blundell, see Economics the Political Sc/"ic",ESSRA, 177 Vauxhall Bridge Rd, London SW1V 1EU.