Pious Sir Speaking...........

Ethics in Economics

Economics concentrates on goods and services that satisfy needs. Yet, there are components of happiness and satisfaction beyond these in the realm of relationships, ethics and morals. This article tries to bridge the gap by expanding the scope of wealth from GDP (Gross Domestic Product) to GPI (Genuine Progress Indicator) and GWA (Genuine Wealth Assessment).

Ethics is a collective term used to represent the values, principles, and morals of human beings that guide their behaviour in the society. It is applicable to all social sciences, and economics, the mother of all social sciences is no exception.
Economics is the study of how people divide or allocate valuable goods or services. It is concerned with the use of resources. Production, distribution and consumption of goods and services are the activities of the economy. Production refers to the manufacture of goods, distribution refers to the exchange of resources, goods and services by assigning ‘value’ in the markets.

What is valuable?
Any entities which are useful to human beings directly or indirectly are valuable. For example,
1. Money, car, house or property, clothes, phones, computer etc. which are visible.
2. Family, friends, relatives, neighbours etc which constitute the human relationships.
3. Birds, animals, fish, flowers, insects, plants, trees, which constitute the other living things.
4. Water, air, soil, ecosystems functions, ecosystem services.

Welfare Economics and Ethics
"Economics is the study of
Mankind in the ordinary
Business of life."
-Alfred Marshall
Prof. Alfred Marshall, after reading J. S. Mill’s ‘Political Economy’, said, "From the stand point of ethics, justifying the existing condition of society was not easy. A friend, who had read a great deal of what are now called the Moral Sciences, said, "If you understood Political Economy you would not say that." So I read Mill's Political Economy and got excited about it.
“He desires not merely larger quantities of the things he is accustomed to consume, but also better qualities of those things; he desires a greater choice of things, and things which will satisfy new wants growing up in him.”
Alfred Marshall, Principles of Economics, Book III, 1890.
Therefore, according to Alfred Marshall, Wealth of human being is “the conditions of well being”. Well being is more than happiness and satisfaction. It also includes developing as a person, being fulfilled, and contributing to society. Being happy is good for you and others. Surveys show that the key determinants of our well-being are i) our parents, i.e. through our genes and upbringing (50%) ii) our activities and outlook (40%) and iii) environment of our circumstances, income, where we live, climate etc.(10%).

Needs Vs Wants
How do we provide a high quality of life for this and future generations?
Consumption is only one narrow component of human needs. The GNP, Gross National Product of a country measures everything, except that which makes life worthwhile. The GDP is like a calculator, it only knows how to add. GDP adds up all money transactions without accounting forecasts. “The love of money is the root cause of all evils”- Apostle Paul, Bible. Wants are unlimited, whereas needs are limited.

What do we mean by well-being?
It is more than happiness and satisfaction and it also includes developing as a person, being fulfilled and contributing to society. “The welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP. Goals for more growth should specify of what and for what” – Simon Kuznets, Architect of the GNP-1962.

The Genuine Progress Indicator (GPI)
The Genuine Progress Indicator is a new measure of economic well being that corrects the accounting errors inherent in the system of national accounts from which the GDP is derived. It measures not only the material thing but also human relationships of family, friends, relatives and the community in which he or she belongs to.

Components of GPI
The household or personal consumption adds the value of house work, household service from streets and subtracts cost of lost leisure family breakdown, commuting time and under employment, subtracts the cost of crime, auto accidents, perishables subtracts long-term environmental degradation, air pollution, ozone depletion, noise pollution, loss of farm land, forests, wetlands, and adjusts net capital formation and net foreign borrowing.

Genuine Wealth Assessment (GWA)
Genuine Wealth Assessment is a tool for communities and enterprises to identify measure and manage their genuine wealth that is their well being. The human, social, natural, manufactured and financial capital assets that contribute to a sustainable well-being added with the social relationship that contributes the well being of others constitute Genuine Wealth Assessment.

Perfect Competition and Well being
Perfectly competitive market is characterized as an ideal market condition because of the homogeneity of products and genuine competition where pricing decisions are subject to the market forces of demand and supply. Homogeneous products are products made by all the business firms which are identical to each other. The absence of individual pricing policy, black marketing, cut-throat competition and adulteration makes perfectly competitive market an ideal market. But for today’s business world, profit maximization is supreme. It is difficult to have an ideal market unless strong government intervention is imposed. Ironically, this too vitiates the concept of laissez faire market.
Economics does not shy away from holding self interest and profit in high esteem. Ethics takes a broader view and points out that Collective welfare or well being is not just the algebraic sum of individual gains. Relationships and the environment in which they operate In fact can suffer damage if a narrow self interested view is taken.
The problem with the application of ethics and morals to social problems is, they cannot be subjected to rigorous quantitative evaluation like concepts of economics can be. There is scope for a lot of subjective valuation.
In fact, one of the values is, ‘should quantitative methods be regarded as superior to other methods of valuation’. Supporters of rigorous methods would argue that they should be because they can guide diverse views to converge to a consensus. Others would point out that there is many a thing on which you cannot put a number or a price.

Whether you can use some of the indicators for meaningful comparison of well being of different societies, countries or not, may be one issue. But a larger issue is not to lose track of the importance of relationships, values and ethics.

Dr. Pious Thomas