Transcript
Intro [00:00:06] Welcome to OECD Podcasts, where policy meets people.
Clara Young [00:00:06] If what we all really want is to live happy, fulfilling lives, what's getting in the way of that? Well, for one thing, our insecurity about jobs and what's going to happen to them. Also, the fact that so many of us are just getting by while a small group of people have more wealth than they know what to do with. And, of course, the frightening reality of climate change. Jeffrey Sachs, who's an economics professor and director at the Centre for Sustainable Development at Columbia University, argues that these problems are symptoms of a broken system, an economic system in which the bottom line is profit, and we pursue profit at the expense of the well-being of others, ultimately ourselves and our planet. I'm Clara Young and it's my great pleasure to speak to Professor Sachs. Thanks for coming into the studio and talking to us.
Jeffrey Sachs [00:01:16] Great to be with you. Thank you.
Clara Young [00:01:18] Adam Smith wrote that self-interest without justice, and we could probably say he means social justice here, makes society impossible, that the fabric of society will crumble into atoms. Is that where we're at now?
Jeffrey Sachs [00:01:16] It's an interesting point that Smith was writing both about markets and selfinterest. But he also paid attention, of course, in a very wonderful famous book called The Theory of Moral Sentiments about the essence of morality and decent behaviour. We have gone, unfortunately, very far in the direction of self-interest and lost some of the self-control and the moral norms that are crucial for societies to work decently. And this is indeed a big challenge, a world that is directed by profits, by market forces, and that isn't attending even to its survival right now because of the crisis of climate change or the massive social impacts of technology and all the inequalities that are being caused by that. We need to get our heads on straight again and understand that the markets can help serve us, but they should not be our master.
Clara Young [00:02:24] The things that you mentioned, climate change and income inequality, are some of the biggest impediments to well-being of everybody on the planet. You've been fighting for the idea of well-being as an economic goal for a long time. It's gaining traction in certain governments like Scotland and New Zealand. What about in corporate circles and especially multinational corporation circles?
Jeffrey Sachs [00:02:48] There was a famous idea, maybe infamous, put forward by Milton Friedman decades ago that the only role of a manager of a corporation is to maximise the wealth of shareholders. Many CEOs took that to be the case, though they added in maximising their own wealth along the way, certainly. And the result is a lot of very bad corporate behaviour. Companies that say we're going to make a profit, even if it comes at the expense of society. Oil companies that know better, that know the truth about climate change but have to simulated, have prevaricated, have simply told lies for many, many years, have lobbied to keep away the regulations needed to de-carbonise the energy system. The food industry that has really poisoned a lot of the world population with ultra-processed foods, causing obesity and other ills. These companies have known about it. They have sponsored pseudo research to say it's not real and they have gone on in the face of growing epidemics of metabolic disorders, in this way doing great harm. The fact of the matter is that the corporate sector, especially in the United States, but because we're a world system all over the world, has been very irresponsible. Very recently, some American CEOs admitted it in a statement issued by the Business Roundtable saying that, well, maybe companies should look beyond only the wealth of shareholders to take into account other stakeholders. This is obviously the case. The first rule of business should be do no harm. Even if it's legal or skirting the law or unclear, companies should not pollute. They should not sell dangerous products that are bad for their own consumers. Even if the consumers are ready to pay for it. They should have responsibility. The Business Roundtable statement recently is at least a glimmer of hope that businesses are waking up to this responsibility, often under a lot of correct pressure from civil society.
Clara Young [00:05:16] The OECD has been working for a long time a responsible business conduct. What are the ways that you think that corporations can, in the most effective way, embed well-being into the way they do business?
Jeffrey Sachs [00:05:31] The first responsibility, again, is do not make harm and companies should scrutinise their own behaviour, I believe, in four basic ways. They should ask, are the products and services that we produce good for society or harmful? It's not self-evident. There are many, many harmful products that are put out on the market and that are purchased. Second is the way that we produce our goods and services sustainable socially and environmentally? Third, are the value chains that we operate in when we buy commodities, are those produced in sustainable ways? It's not good enough for a company to buy products from the Amazon when the Amazon is on fire and say, well, it's not our business where it comes from, we just process it. That won't do. We need co-responsibility along the whole global supply chain. And the fourth is, are we honest, trustworthy citizen of our countries and our societies where we operate? Do we pay taxes fairly? Companies are cheating everywhere on taxes. This is another thing the OECD has been trying to clamp down on, but of course, against very powerful interests. The cheating is a system, a system of tax havens, a system of tax abuse, a system of skirting the law, a system of knowing that there won't be audits of the big boys, a system of knowing what one can get away with, even though it absolutely is against the spirit of the law, if not the letter of the law. And so, good citizenship means behaving properly, transparently, decently and not preying on the weaknesses, the vulnerabilities or the corruption of the regulatory system.
Clara Young [00:07:28] But a lot of corporations, they argue that when you do the right thing for sustainability and well-being, that it gets in the way of economic growth. And a good example, that is carbon tax. A lot of corporations and governments have argued they don't want the carbon tax because that will hobble economic.
Jeffrey Sachs [00:07:47] Growth is a strange word in this context, because what we're really interested in is well-being. Growth is an accounting term. It means that the gross domestic product rises. But if what is being produced is harmful, it's not growth in the real sense of improvement or progress. It's growth in a quantitative sense that actually can kill us. So, hobbling growth of fossil fuel production is just what we want. It will not hobble progress or well-being. The air will be cleaner, the climate will be safer. The ability of societies to continue to improve living standards will remain. What will be hobbled is what is written in a national income account, which doesn't translate into our well-being. So, we should not be guided by these false signals. Profits that are really destructive measures of output that are really decrements, negative changes to our well-being. We should improve our measurement so that the things that we are pursuing really are for our benefit. The word growth is horribly misused. Maybe the businesspeople that argue for it don't really understand what growth means, but we need to understand growth means improvements of well-being. It doesn't mean a rise of measured GDP, a very flawed indicator that never was designed to measure well-being.
Clara Young [00:09:29] I think also a lot of the problem is that many things that are intangible are left out of the balance sheet. For example, all the negative side externalities like pollution or losing people's trust. And on the positive side, things like better health and all that. And that's what you are helping, for example, the OECD work on, better indicators of well-being as well as including negative externalities.
Jeffrey Sachs [00:09:54] One way that we're promoting that is to ask people about the quality of their lives, what is called subjective well-being. We learn a lot from listening to people talk about their lives. If they express desperation, if they express chronic anxieties, if they say that their life is not the kind of life that they want to live. We should take note, because that is very, very meaningful. And we're finding that more and more governments are interested properly in listening to their populations about what people say about their lives and then using those data, the measures of subjective well-being, to help set a better course on policy. If we continue to rely only on the gross domestic product, we will go right over the cliff. We will end up in utter despair, rich and dead. It's not what we want. We want survival, sustainability and well-being.
Clara Young [00:11:00] Are economists getting more comfortable with subjective indicators of happiness?
Jeffrey Sachs [00:11:06] There can be no other indicators of happiness than subjective. This is our experience of life. What it means to be happy is that in one self-aware way, we regard our lives as worthwhile, meaningful, satisfying. So, in that sense, there's nothing strange about subjectivity of wellbeing. It happens that there are systematic determinants of one's subjective well-being.
Jeffrey Sachs [00:11:35] How people report about their lives depends on their being able to meet basic needs, to have security, to have social connexions, to be living in societies that are well-ordered, where governments also behave and are not corrupt. So, there's a lot of evidence of what shapes subjective wellbeing, but economists absolutely should get used to that because if instead they say we're just going to follow money, we're going to end up exactly where we don't want to be. Now, Adam Smith wrote a wonderful book in 1776 called The Wealth of Nations, and he said a lot about wealth. But we need to understand that our ultimate goal is not the wealth of nations, it's the well-being of nations.
Clara Young [00:12:28] You said that the market does not pursue the common good. But the market is better than anything at getting things done and getting things done. Well, we just can't do without it. So how do you get profit-maximising shareholder corporations to tackle global problems like climate change, poverty and income inequality that don't really add to their bottom line?
Jeffrey Sachs [00:12:53] No doubt, when people are pursuing self-interest. There's a powerful motivation at work, and that's why markets are effective. If the problem at hand is susceptible of a market solution and many problems are. Consumer goods or development of many new technologies are driven rightly by market forces. But we know that the inequalities in society need to be addressed not by market forces alone, but also by our shared action, our collective action through government. That's why the most successful economies, the happiest ones are ones that tax a lot and use those tax revenues to provide universal access to health or to safe physical environment or to quality education. Now, how do you get companies to do the right things? You tell them you must not do the wrong things. This is one major way. Regulate them. When scientists discovered that the ozone level was being attacked by our refrigerants, the chlorofluorocarbons, the world governments got together and said we need to phase out those CFCs within a short period of time. And companies were told you cannot continue to produce that period. And we got over that crisis because of regulation. Now we have a crisis of carbon emissions. We've discovered that unfortunately the way we produce energy is going to devastate us and the planet unless we produce energy through zero-carbon means. Wind, hydro, solar, geothermal and so on. We have to tell the companies you can't produce hydrocarbons. Now, that means phasing these dangerous primary energy sources out step by step. It can't happen in one day, but it's not a matter of begging them or appealing to their moral standards, though we should also do that. It's a matter of saying at such and such date, automobile manufacturers cannot sell internal-combustion engine vehicles anymore. You can sell only zero-emission vehicles. I think that date should be the year 2030. We should be telling the utilities industry by the year 2040, the electrons that you're putting into the grid have to be zero-carbon based.
[00:15:39] In other words, if you have coal, oil or gas plants, phase them out. Germany has said by 2038, the coal plants will be all closed. This is the right policy. So, we have to understand that markets by themselves will not solve these problems. We need collective action. That's why we have government. As Aristotle said, the purpose of government is the public good. And we need to use government to regulate clearly what should not be done.
Clara Young [00:16:13] I think this is my last question. Professor Sachs, you were one of the people who advised the pope on his second encyclical, Laudato si', which the church published in 2015. And the major theme in Laudato si' is that everything is connected, that the way we produce, the way we consume and waste have consequences for our planet. Next March, the pope is calling on economists, entrepreneurs and young people to join in what the church is calling the “Economy of Francesco.” Can you talk about this?
Jeffrey Sachs [00:16:47] It's a very exciting initiative. Francesco there refers to Saint Francis. Also we think it refers to Pope Francis because he's so wonderful.
Clara Young [00:17:01] And it’s going to be at Assisi.
Jeffrey Sachs [00:17:04] And it’s going to be at Assisi, the place of Saint Francis. And Pope Francis has given us the most magnificent text about what he calls “integral ecology”. That is, as you said, the interconnectedness of all things of each of us to each other and each of us to the earth, to the ecosystems, to other species and the fundamental moral and ethical underpinnings of that. That we should be living our lives and our government should be acting to understand that interdependence. Pope Francis says that interdependence obliges us to think of a common plan for our common home. And that common plan, the closest we have to it is the Sustainable Development Goals and the Paris Climate Agreement. Indeed, Pope Francis spoke to the UN General Assembly on the morning of September 25th, 2015. I remember the day very clearly because it was so exciting, about the need for a common plan and at the conclusion of his speech, the world's governments unanimously adopted the Agenda 2030 and the 17 Sustainable Development Goals. The idea of the economy of Francesco in Assisi next March will be to help to reformulate economics away from the idea that markets provide all the solution. And the pursuit of profit is the basic organising principle of the world economy, to an economy that is based on well-being, that is based on interconnectedness, human decency, a moral framework, the responsibilities of all to help the extreme poor and to protect nature and the Earth's ecosystems. It's a very exciting venture. There will be young people coming from all over the planet. There will be some of the older types like myself coming to brainstorm together. And I believe that it will have a significant effect on my discipline of economics, which needs a major reform. And I hope and believe that it will help to shape a practical way forward in a world that's very wealthy but is not fair and it's not sustainable. And we need all three. We need prosperity, but we also need social justice and we need environmental sustainability. That's the Economy of Francesco's aim.
Clara Young [00:19:51] Thank you very much for speaking to us, Professor Sachs.
Jeffrey Sachs [00:19:54] Great to be with you. Thank you.
Clara Young [00:19:56] And thanks for listening to podcasts. I'm Clara Young. For more on the topic of well-being, have a look at the “OECD Better Life Index.”
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